SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )
Filed by the registrant |_|
Filed by a party other than the registrant |X|
Check the appropriate box:
|_| Preliminary proxy statement |_| Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
|X| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
First Union Real Estate Equity and Mortgage Investments
-------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Gotham Partners, L.P.
-------------------------------------------------------
(Name of Person Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
1998 ANNUAL MEETING OF THE BENEFICIARIES
OF
FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
---------------------------------
PROXY STATEMENT
OF
GOTHAM PARTNERS, L.P.
---------------------------------
This Proxy Statement and the accompanying WHITE proxy card are
furnished by Gotham Partners, L.P., a New York limited partnership
("Gotham"), in connection with the solicitation by Gotham of proxies
from the holders of shares of Beneficial Interest, par value $1.00 per
share (the "Shares"), of First Union Real Estate Equity and Mortgage
Investments, an Ohio business trust (the "Company"), to vote at the
1998 Annual Meeting of Beneficiaries of the Company, including any
adjournments or postponements thereof and any special meeting of
Beneficiaries called in lieu thereof (the "Annual Meeting"), to take
the following actions: (i) to elect William A. Ackman, David P.
Berkowitz and James A. Williams to the three existing seats on Class
II of the Board of Trustees of the Company (the "Board") which will be
open for election at the Annual Meeting; (ii) to approve a Beneficiary
proposal to increase the size of the Board from nine members to
fifteen members, with two new seats in each of the three classes on
the Board, and to hold an election for the six newly created seats
(the "Gotham Proposal"); (iii) in the event that the Beneficiaries of
the Company adopt the Gotham Proposal, to elect Daniel Shuchman and
Steven S. Snider to the new Class I seats on the Board, Mary Ann Tighe
and Stephen J. Garchik to the new Class II seats on the Board, and
David S. Klafter and Daniel J. Altobello to the new Class III seats on
the Board (each of such nominees together with the nominees referred
to in clause (i) above and Gotham's alternate nominee being
hereinafter referred to as a "Gotham Nominee" and collectively as the
"Gotham Nominees"); and (iv) to vote against the Company's Proposal to
fix the number of Trustees at twelve with one additional vacancy to be
added to each existing class of Trustees (the "Current Board's
Proposal"). The principal executive offices of the Company are located
at 55 Public Square, Suite 1900, Cleveland, Ohio 44113-1937. This
Proxy Statement and the WHITE proxy card are first being furnished to
the Company's Beneficiaries on or about March 12, 1998.
<PAGE>
GOTHAM RECOMMENDS THAT YOU VOTE IN FAVOR OF THE GOTHAM NOMINEES
AND THE GOTHAM PROPOSAL AND AGAINST THE CURRENT BOARD'S PROPOSAL.
The adoption of the Gotham Proposal and the election of the
Gotham Nominees will result in Gotham obtaining control of the
Company's Board of Trustees. Gotham is seeking control because of its
disappointment with the Company's fundamental business performance as
measured on a per-share basis and Gotham's belief that the Company has
not successfully pursued certain alternatives to maximize the value
inherent in its stapled-stock structure. These alternatives include
(i) the sale of the Company, (ii) a partnership with a strategic
investor, (iii) the acquisition of appropriate operating businesses at
economically attractive prices which will take advantage of the
Company's stapled-stock structure, and (iv) a change in management. If
elected, the Gotham Nominees, subject to their fiduciary duties, will
propose changes in the senior management of the Company, although
Gotham has not yet identified the members of the new management team,
and will explore other alternatives to maximize shareholder value,
including an outright sale of the Company, a partnership with a
strategic investor and/or the acquisition of real estate-intensive
operating businesses, in a manner that would preserve and maximize the
value of the Company's stapled-stock structure.
The Annual Meeting is scheduled to be held in the Forum
Conference Center, located at One Cleveland Center, Cleveland, Ohio,
on Tuesday, April 14, 1998, at 10:00 A.M., Eastern Daylight Time. The
Company has set February 13, 1998 as the record date for determining
the Beneficiaries entitled to notice of and to vote at the Annual
Meeting (the "Record Date"). Only Beneficiaries of record of Shares on
the Record Date will be entitled to vote at the Annual Meeting for
each Share. Gotham and Gotham Partners II, L.P. ("Gotham II"), an
affiliate of Gotham, beneficially own an aggregate of 2,632,400 Shares
(including 100 Shares held of record by Gotham and the remainder held
in "street name"), which collectively represent approximately 8.34% of
the Shares outstanding (based on information publicly disclosed by the
Company). Gotham and Gotham II intend to cause all of such Shares to
be voted FOR the adoption of the Gotham Proposal and the election of
the Gotham Nominees and AGAINST the adoption of the Current Board's
Proposal.
BY SIGNING, DATING AND MAILING THE ENCLOSED WHITE PROXY CARD YOU
WILL REVOKE ANY PREVIOUSLY DATED PROXY. ONLY YOUR LATEST-DATED PROXY
WILL COUNT AT THE MEETING.
THIS SOLICITATION IS BEING MADE BY GOTHAM AND NOT ON BEHALF OF
THE BOARD OF TRUSTEES OF THE COMPANY.
YOUR VOTE IS EXTREMELY IMPORTANT. If you do not submit a proxy
card or vote in person at the Annual Meeting, your Shares will not be
voted on the
2
<PAGE>
Gotham Proposal, the Gotham Nominees or the Current Board's Proposal.
If you agree with Gotham's efforts, we ask for your support by
immediately signing, dating and mailing the enclosed WHITE proxy card.
SHARES IN YOUR NAME. No matter how many Shares you own, vote
"FOR" the Gotham Proposal and the Gotham Nominees and "AGAINST" the
Current Board's Proposal by signing, dating and mailing the enclosed
WHITE proxy card. Sign the WHITE proxy card exactly as your name
appears on the share certificate regarding your Shares.
SHARES IN YOUR BROKER'S OR BANK'S NAME. If you own Shares in the
name of a brokerage firm, bank or other nominee, your broker, bank or
other nominee cannot vote your Shares for the Gotham Proposal and the
Gotham Nominees and against the Current Board's Proposal unless it
receives your specific instructions. Please sign, date and mail as
soon as possible the enclosed WHITE proxy card in the envelope that
has been provided by your broker, bank or other nominee to be sure
that your Shares are voted, or contact the person responsible for your
account and instruct that person to execute a WHITE proxy card on your
behalf.
QUESTIONS AND ASSISTANCE. If you have not received a WHITE proxy
card or have any questions or need assistance in voting, please call:
Beacon Hill Partners, Inc.
90 Broad Street
New York, New York 10004
(212) 843-8500 (CALL COLLECT)
or
CALL TOLL-FREE (800) 253-3814
PLEASE REMEMBER TO DATE YOUR PROXY CARD, AS ONLY YOUR LATEST
DATED PROXY WILL COUNT AT THE ANNUAL MEETING. IF YOU HAVE ANY DOUBTS
AS TO WHETHER YOUR PROXY WILL BE RECEIVED IN TIME TO BE CAST AT THE
ANNUAL MEETING, PLEASE CALL BEACON HILL PARTNERS, INC. PROMPTLY.
3
<PAGE>
THE GOTHAM PROPOSAL
Gotham sets forth the following proposal to be considered by the
Beneficiaries of the Company at the Annual Meeting:
Resolved, in accordance with Article VIII, Section 8.1 of the
Company's Declaration of Trust, as amended (the "Declaration of
Trust"),
(i) that the number of Trustees constituting the full Board
of Trustees of the Company shall be determined at the Annual
Meeting to be fixed at fifteen (an increase of six members); and
(ii) that two of the newly-created seats of the Board of
Trustees of the Company be assigned to each of Class I, Class II
and Class III; and
(iii) that, at the Annual Meeting, in addition to electing
the three Trustees to fill the seats of the three Trustees in
Class II whose terms are expiring, the Beneficiaries of the
Company shall also elect six Trustees (two Trustees to each of
Class I, Class II and Class III) to serve in the newly-created
seats established in paragraph (ii) above.
YOU ARE URGED TO VOTE FOR THE GOTHAM PROPOSAL ON THE ENCLOSED
WHITE PROXY CARD.
ELECTION OF GOTHAM NOMINEES AS TRUSTEES
Gotham is proposing that the Beneficiaries of the Company elect
the Gotham Nominees to the Board at the Annual Meeting. Currently, the
Board of Trustees is composed of nine Trustees and is divided into
equal classes known as Class I, Class II and Class III whose terms
expire in 2000, 1998 and 1999, respectively. It is proposed that
William A. Ackman, David P. Berkowitz and James A. Williams be elected
to succeed the current Class II Trustees on the Board (or any Trustee
named to fill any vacancy created by the death, retirement,
resignation or removal of any of such Class II Trustees) at the Annual
Meeting. In the event that the Beneficiaries of the Company adopt the
Gotham Proposal, it is proposed that Daniel Shuchman and Steven S.
Snider be elected to the two Class I seats on the Board created as a
result of the adoption of the Gotham Proposal, Mary Ann Tighe and
Stephen J. Garchik be elected to the two Class II seats on the Board
created as a result of the adoption of the Gotham Proposal, and David
S. Klafter and Daniel J. Altobello be elected to the two Class III
seats on the Board created as a result of the adoption of the Gotham
Proposal. Richard A. Mandel will be nominated for election to the
Board in the event that any one of the aforementioned candidates is
unable for any reason to be elected and to serve as a Trustee.
4
<PAGE>
The following table sets forth the name, age and present principal
occupation, business address and business experience for the past five
years, and certain other information, with respect to each of the Gotham
Nominees. This information has been furnished to Gotham by the respective
Gotham Nominees. Each of the Gotham Nominees has consented to serve as a
Trustee and, if elected, would hold office until the expiration of the term
of the Class of Trustees to which such nominee is elected and until his or
her successor has been elected and qualified or until earlier death,
retirement, resignation or removal.
PRINCIPAL OCCUPATION OR
NAME, AGE AND EMPLOYMENT DURING
BUSINESS ADDRESS THE LAST FIVE YEARS
---------------- -------------------
William A. Ackman (31)............... Through a company he owns, Mr.
Gotham Partners Management Co. LLC Ackman is a co-investment manager
110 East 42nd Street, 18th Floor of Gotham and Gotham II. Since
New York, New York 10017 January 1, 1993, Mr. Ackman has
been the Vice President, Secretary
and Treasurer of GPLP Management
Corp., the Managing Member of
Gotham Partners Management Co. LLC,
an investment management firm (and
the General Partner of its
predecessor entity). Mr. Ackman has
been employed by Gotham Partners
Management Co. LLC and its
predecessor entity since January 1,
1993. Mr. Ackman was a general
partner of Section H Partners,
L.P., the General Partner of the
Gotham Partners, L.P. and Gotham
Partners II, L.P. investment funds,
from January 1, 1993 through
September 1993. Mr. Ackman has been
the President, Secretary and
Treasurer of Karenina Corporation,
a general partner of Section H
Partners, L.P. since October 1993.
Mr. Ackman is also a member of the
Executive Committee of Gotham Golf
Partners, L.P. (described below).
Mr. Ackman holds an A.B. from
Harvard College and an M.B.A. from
Harvard Business School. Mr. Ackman
is a member of the Board of
Directors of the Jerusalem
Foundation and Chairman of its
Investment Committee. He is also
the Chairman of Crimson Impact, a
community service organization.
Daniel J. Altobello (57)............. Mr. Altobello has been the Chairman
ONEX Food Services, Inc. of the Board of ONEX Food Services,
6550 Rock Spring Drive Inc., an airline catering company,
Bethesda, Maryland 20817 since September 1995. Mr. Altobello
has been a partner in Ariston
Investment Partners, a consulting
firm, since September 1995. Mr.
Altobello was the Chairman,
President and Chief Executive
Officer of Caterair International
Corporation, an airline catering
company, from January 1, 1993 until
September 1995. Mr. Altobello
5
<PAGE>
is a member of the Boards of
Directors of American Management
Systems, Inc., Colorado Prime
Corporation and Blue Cross Blue
Shield of Maryland. Mr. Altobello
holds a B.A. from Georgetown
University and an M.B.A. from
Loyola College in Maryland.
David P. Berkowitz (36).............. Through a company he owns, Mr.
Gotham Partners Management Co. LLC Berkowitz is a co-investment
110 East 42nd Street, 18th Floor manager of Gotham and Gotham II.
New York, New York 10017 Since January 1, 1993, Mr.
Berkowitz has been the President of
GPLP Management Corp., the Managing
Member of Gotham Partners
Management Co. LLC, an investment
management firm (and the General
Partner of its predecessor entity).
Mr. Berkowitz has been employed by
Gotham Partners Management Co. LLC
and its predecessor entity since
January 1, 1993. Mr. Berkowitz was
a general partner of Section H
Partners, L.P., the General Partner
of Gotham Partners, L.P. and Gotham
Partners II, L.P. investment funds,
from January 1993 through September
1993. Mr. Berkowitz has been the
President, Secretary and Treasurer
of DPB Corporation, a general
partner of Section H Partners, L.P.
since October 1993. Mr. Berkowitz
is also a member of the Executive
Committee of Gotham Golf Partners,
L.P. (described below). Mr.
Berkowitz holds a B.S. and an M.S.
from the Massachusetts Institute of
Technology and an M.B.A. from
Harvard Business School. Mr.
Berkowitz is a member of the Board
of Directors and serves on the
Executive Committee of the Jewish
Community House of Bensonhurst.
Stephen J. Garchik (43).............. Since January 1, 1993, Mr. Garchik
The Evans Company has been the President of The Evans
8251 Greensboro Drive, Suite 850 Company, a commercial real estate
McLean, Virginia 22102 development and management firm.
Since July 1996, Mr. Garchik has
been the Chairman of Gotham Golf
Partners, L.P., a community golf
course ownership, operation and
development enterprise in which
Gotham has a substantial
investment. Mr. Garchik holds a
B.S. and an M.B.A. from the
University of Pennsylvania.
David S. Klafter (43)................ Mr. Klafter has been an in-
Gotham Partners Management Co. LLC house counsel and a member of the
110 East 42nd Street, 18th Floor investment team of Gotham Partners
New York, New York 10017 Management Co. LLC, an investment
management firm, since April 1996.
Mr. Klafter was counsel at White &
Case, a law firm, from January 1,
1993 until December 1993, and a
partner at White & Case from
January 1994 until April 1996. Mr.
Klafter's law practice was in
general commercial litigation, with
an emphasis on real-estate related
6
<PAGE>
matters, including leases, mortgages
and loan work-outs. Mr. Klafter
holds a B.A. from Northwestern
University and a J.D. from New York
University School of Law. He serves
on the Visiting Committee of the
College of Arts and Sciences of
Northwestern University.
Richard A. Mandel (35)............... Mr. Mandel has been the President
Alternate Nominee of the Brokerage Division of
Kennedy-Wilson International Kennedy-Wilson International, a
1270 Avenue of the Americas real estate brokerage and
Suite 1818 investment firm, since December
New York, New York 10020 1996. From October 1993 until
December 1996, Mr. Mandel was a
Managing Director in charge of the
Asian Operations of Kennedy-Wilson
International. From January 1, 1993
until October 1993, he was a
Director of Jones Lang Wootton, a
real estate brokerage firm. Mr.
Mandel is a member of the Board of
Directors of Kennedy-Wilson
International. Mr. Mandel holds a
B.A. from Washington University in
St. Louis and an M.B.A. from
Northwestern University's Kellogg
Graduate School of Management.
Daniel Shuchman (32)................. Mr. Shuchman has been a member of
Gotham Partners Management Co. LLC the investment team at Gotham
110 East 42nd Street, 18th Floor Partners Management Co. LLC, an
New York, New York 10017 investment management firm, since
October 1994. Mr. Shuchman was an
investment banker at Goldman Sachs
& Co., an investment banking firm,
from January 1, 1993 until August
1994. Mr. Shuchman holds a B.A.
from the University of
Pennsylvania.
Steven S. Snider (41)................ Since January 1, 1993, Mr. Snider
Hale and Dorr LLP has been a senior partner at Hale
1455 Pennsylvania Avenue, N.W. and Dorr LLP, a law firm. Mr.
Washington, D.C. 20004 Snider holds an A.B. from Cornell
University and a J.D. from the
University of Chicago Law School.
Mary Ann Tighe (49).................. Since January 1, 1993, Ms. Tighe
Insignia/ESG has been an Executive Managing
200 Park Avenue Director and a member of the
New York, New York 10166 Executive and Strategic Planning
Committees of Insignia/ESG, a
commercial real estate firm. Ms.
Tighe holds a B.A. from Georgetown
University and a master's degree
from the University of Maryland.
She is on the Board of Directors of
the New 42nd Street, a New York
City-based community revitalization
organization.
7
<PAGE>
James A. Williams (55)............... Since January 1, 1993, Mr. Williams
Williams, Williams, Ruby & Plunkett PC has been the President of Williams,
380 N. Woodward Avenue, Suite 380 Williams, Ruby & Plunkett PC, a law
Birmingham, Michigan 48009 firm. Mr. Williams has also been
the Chairman of Michigan National
Bank and Michigan National
Corporation since November 1995.
Mr. Williams holds a B.A. from the
University of Michigan and a J.D.
from Wayne State University Law
School. Mr. Williams is Chairman of
the Henry Ford Hospital in West
Bloomfield, Michigan. He is a
Trustee of Henry Ford Health System
and the Oakland University
(Michigan) Foundation and a member
of the Board of Governors of the
Cranbrook School.
If the Gotham Proposal is adopted and all of the Gotham Nominees are
elected to the Board, the Gotham Nominees will constitute a majority of the
Board. If the Gotham Nominees are elected to the existing Class II seats on
the Board that will be open at the Annual Meeting, but the Gotham Proposal
is not adopted by the Beneficiaries of the Company, the Gotham Nominees
will not constitute a majority of the Board, but the three Gotham Nominees
elected in such case will, in accordance with their fiduciary duties, use
their positions on the Board to urge the Board to make certain changes to
senior management and to explore other alternatives to maximize shareholder
value in a manner that would preserve and maximize the value of the
Company's stapled-stock structure.
The Gotham Nominees will not receive any compensation from Gotham for
their services as Trustees of the Company. Gotham has agreed to indemnify
all of the Gotham Nominees against any costs, expenses and other
liabilities associated with their nomination and the election contest. Each
of the Gotham Nominees has consented to being a nominee of Gotham for
election as a Trustee of the Company and to serve as a Trustee if so
elected.
According to the Company's public filings, if elected as Trustees of
the Company, the Gotham Nominees who are not employees of the Company would
receive under the Company's current policies an annual retainer fee of
$12,000 and an attendance fee of $1,000 for each meeting of the Board and
each committee meeting attended. The Gotham Nominees, if elected, may
consider modifying this fee-based compensation structure to an equity-based
incentive program.
In order to further align their interests with those of the Company's
Beneficiaries, the Gotham Nominees who are affiliated with Gotham, namely
William A. Ackman, David P. Berkowitz, David S. Klafter and Daniel
Shuchman, have agreed to waive all fees and any other compensation payable
to them by the Company in the course of their service as Trustees.
8
<PAGE>
All Trustees of the Company would be reimbursed by the Company
for expenses incurred in connection with their services as Trustees of
the Company. The Gotham Nominees, if elected, will be indemnified by
the Company for service as a Trustee of the Company to the extent
indemnification is provided to Trustees of the Company under the
Declaration of Trust of the Company and the By-Laws of the Company, as
amended (the "By-Laws").
The beneficial ownership of Shares by the Gotham Nominees and
certain additional information concerning the Gotham Nominees and
other participants in this solicitation is set forth on Schedule I of
this Proxy Statement.
Gotham does not expect that any of the Gotham Nominees will be
unable to stand for election, but, in the event that any one of the
Gotham Nominees is unable to stand for election, the Shares
represented by the enclosed WHITE proxy card will be voted for Richard
A. Mandel instead of such Gotham Nominee. In addition, Gotham reserves
the right to nominate substitute or additional persons if the Company
makes or announces any changes to its By-Laws or takes or announces
any other action that has, or if consummated would have, the effect of
disqualifying any or all of the Gotham Nominees. The Company has
contested Gotham's nomination of the Gotham Nominees and its making of
the Gotham Proposal and is seeking to prevent and nullify such
nominations and proposal. See "Certain Litigation." In any such case,
Shares represented by the enclosed WHITE proxy card will be voted for
all such substitute or additional nominees selected by Gotham.
In accordance with applicable regulations of the Securities and
Exchange Commission (the "Commission" or "SEC"), the WHITE proxy card
affords each Beneficiary the opportunity to designate the names of any
of the Gotham Nominees whom he or she does not desire to elect to the
Board. Notwithstanding the foregoing, Gotham urges Beneficiaries to
vote for all of the Gotham Nominees on the enclosed WHITE proxy card.
The persons named as proxies on the enclosed WHITE proxy card will
vote, in their discretion, for each of the Gotham Nominees who is
nominated for election and for whom authority has not been withheld.
YOU ARE URGED TO VOTE FOR THE ELECTION OF THE GOTHAM NOMINEES ON
THE ENCLOSED WHITE PROXY CARD.
THE CURRENT BOARD'S PROPOSAL
The Company's amended preliminary proxy statement in connection
with the Annual Meeting, filed with the Commission on February 20,
1998 (the "Company's Preliminary Proxy Statement"), proposes that the
Beneficiaries of the Company vote in
9
<PAGE>
favor of fixing the number of Trustees at twelve, an increase of three
seats, with one vacancy added to each of the three existing classes of
Trustees. Under the Current Board's Proposal, the Beneficiaries would
be denied the right to fill these seats. Instead, the incumbent
Trustees would be able to pick whomever they wish to fill the new
seats whenever they wish to do so, subject only to the nominees being
"qualified" (a term left undefined in the Company's Preliminary Proxy
Statement) and, presumably, to the incumbent Trustees' fiduciary
duties.
Gotham is against the Current Board's Proposal because it denies
the Beneficiaries the right to choose their Trustees. Gotham believes
that the Current Board's Proposal is in contravention of the
Declaration of Trust, which provides that the right of Trustees to
fill vacancies on the Board of Trustees arises only when a Trustee
resigns or is removed or when it is determined subsequent to an
election that a newly-elected Trustee is not qualified to serve as a
Trustee under the Declaration of Trust, and not in connection with an
increase in the size of the Board of Trustees. Gotham believes that
the Current Board's Proposal is inconsistent with well-established law
which provides that absent an explicit provision in the governing
documents to the contrary, shareholders have the right to vote for
newly-created seats on a board and these seats are not deemed
vacancies. Gotham is currently defending the Beneficiaries' right to
choose their Trustees in its litigation with the Company. See
"Possible Effect of the Adoption of the Gotham Proposal and the
Election of the Gotham Nominees--Certain Provisions of the Declaration
of Trust" and "Certain Litigation."
YOU ARE URGED TO VOTE AGAINST THE CURRENT BOARD'S PROPOSAL ON THE
ENCLOSED WHITE PROXY CARD.
BACKGROUND OF THE SOLICITATION
On June 4, 1997, Gotham and Gotham II filed a Schedule 13D with
the Commission which reported that it had acquired Shares and options
to acquire Shares for investment purposes. The Schedule 13D stated
that Gotham and Gotham II generally pursue an investment objective
that seeks capital appreciation, and that in pursuing this investment
objective, Gotham and Gotham II analyze and evaluate the performance
of securities owned by them and the operations, capital structure and
markets of companies in which they invest on a continuous basis
through analysis of documentation on and discussions with
knowledgeable industry and market observers and with representatives
of such companies (often at the invitation of management).
Gotham and Gotham II further reported their belief that in order
for the Company to maximize shareholder value by taking advantage of
its stapled-stock structure, the Company should execute sizable
acquisitions of real estate-intensive operating businesses at
attractive prices. In addition, Gotham and Gotham II described their
concern that (i) in
10
<PAGE>
their opinion, existing management does not have the requisite
background and experience to implement such a value-maximizing
strategy, and (ii) the Company had raised capital in equity offerings
that had diluted the holdings of existing stockholders.
On July 14, 1997, Gotham and Gotham II sent a letter to the Board
of Trustees of the Company and the Board of Directors of First Union
Management, Inc., the Company's affiliated management company. In
summary, the letter raises questions about the Company's strategic
plan and states that Gotham and Gotham II have four primary concerns
with the Company's management, as follows:
first, Gotham and Gotham II's belief that management was unaware
of the Company's stapled-stock structure until late 1996, as indicated
(i) by the Company's description of its strategic plan on October 23,
1996, on which date the Company stated on page S-3 of its convertible
preferred stock prospectus that the Company's "five-year strategic
plan" consisted of "renovating the properties, repositioning the asset
portfolios through targeted acquisitions and dispositions, and
improving the operations of the Company," and made no reference to the
use of the Company's stapled-stock structure and (ii) by a review of
the Company's standard tag line for its press releases, which began
mentioning the Company's stapled-stock structure on or about December
4, 1996;
second, Gotham and Gotham II's belief that the Company overpaid
for its Imperial Parking unit, which belief is based on (i) a
comparison of the multiple of approximately 17 times 1996 fiscal year
EBITDA paid by the Company for Imperial Parking Ltd. to the multiple
paid by Apollo Real Estate and AEW Realty Advisors for Allright
Parking in October 1996 of less than 10 times 1996 fiscal year EBITDA
and (ii) the fact that a significant portion of Imperial Parking's
assets are not REIT-eligible because it owns or leases few of its
assets and because it is not based in the United States, which limits
the Company's ability to take advantage of its stapled-stock
structure;
third, Gotham and Gotham II's belief that the Company's series of
equity offerings beginning in October 1996 diluted existing
shareholders through the issuance of additional common stock and
preferred stock. This belief arises from the decline in the Company's
per share funds from operation of 13% for the third quarter of 1997,
and 27% for the fourth quarter of 1997, as compared to the
corresponding periods in 1996; and
fourth, Gotham and Gotham II's belief that management lacks the
background and experience to manage an acquisition-intensive operating
business because Mr. Mastandrea's background and experience appear to
be chiefly in the area of real estate asset management, and because
the Company had not made an acquisition of an operating company during
the term in office of its current senior management until the Imperial
Parking acquisition.
11
<PAGE>
The letter also described value-maximizing techniques employed by
three other stapled-stock REITs (Starwood Lodging Trust, California
Jockey Club and Santa Anita Realty), indicated that Gotham and Gotham
II would not accept greenmail, and requested a meeting of Gotham
representatives with the Trustees and Directors to discuss the matters
raised in the letter.
On July 21, 1997, Mary Ann Jorgenson of Squire, Sanders &
Dempsey, L.L.P., outside counsel to the Company, sent a letter to
Stephen Fraidin of Fried, Frank, Harris, Shriver & Jacobson, special
counsel to Gotham and Gotham II, stating her belief that a reference
in the letter sent by Gotham and Gotham II on July 14, 1997 to the
effect that Gotham and Gotham II have learned from the example of
Warren Buffett to seek investments in great businesses managed by
people who they like, trust and admire was inappropriate because of
her belief that the use of the word "trust" suggested, by innuendo,
that the management of First Union, and specifically Mr. Mastandrea,
lacked integrity and honesty.
On July 23, 1997, Gotham and Gotham II sent the following letter
to James C. Mastandrea, the Chairman, President and CEO of the
Company:
Mr. James C. Mastandrea
Chairman/President/CEO
First Union Real Estate
55 Public Square, Suite 1900
Cleveland, OH 44113
Dear Mr. Mastandrea:
On July 14, we sent a letter to the Trustees of First Union Real
Estate and Mortgage Investments and the Directors of First Union
Management, Inc. In that letter we asked the Trustees and
Directors, as fiduciaries for the company's shareholders, to
consider two questions. First, is the company's new strategic
plan the most appropriate plan to ensure long-term maximization
of shareholder value? Second, is the current management team
capable of identifying, executing, and integrating the
acquisitions necessary to maximize the value of the company's
unusual corporate structure?
We offered what we believe to be reasoned arguments for
questioning the logic of the company's recently revised strategic
plan and current management's ability to
12
<PAGE>
implement it. In the subsequent week, we have received no
substantive response to our letter.
We are truly interested in being long-term shareholders of First
Union and enjoying the benefit of the company's unusual corporate
structure over a multi-year period. We have absolutely no
interest in any arrangement through which we receive short-term
benefit at the expense of other shareholders. Further, we have
several specific proposals which we believe will manifest our
long-term commitment to First Union.
We would appreciate the opportunity to meet with the Trustees of
First Union Real Estate and Mortgage Investments and the
Directors of First Union Management, Inc. to discuss our original
concerns and our proposals for the future. We will make ourselves
available at your convenience in Cleveland, New York, or any
other mutually agreeable location. We look forward to your
response.
Very truly yours,
Gotham Partners, L.P.
Gotham Partners II, L.P.
/s/ William A. Ackman
---------------------
William A. Ackman
/s/ David P. Berkowitz
----------------------
David P. Berkowitz
13
<PAGE>
On August 20, 1997, James C. Mastandrea sent the following letter
to David P. Berkowitz of Gotham:
Mr. David P. Berkowitz
Gotham Partners Management Co. LLC
110 East 42nd Street, 18th Floor
New York, NY 10017
Dear Mr. Berkowitz:
First Union's Board of Trustees has asked me to respond to your
most recent correspondence.
Your comments about the Trust's strategy and your stated
intentions concerning control of the Trust cause the Board to be
concerned about the impact your actions could have on First
Union's REIT status. Accordingly, in fulfilling its obligations
as fiduciaries to all of our shareholders, the Board formally
requests certain information about your holdings pursuant to
Section 11.7 of the Declaration of Trust of First Union and
Article VI, Section 6(c) of the By-Laws. Specifically, kindly
describe in writing the nature of all such actual, "constructive"
(as defined under the Internal Revenue Code) and "beneficial" (as
defined under Section 13(d) of the Securities Act of 1934)
ownership of First Union securities by you, your partner, Mr.
Ackman, and by any and all Gotham entities, affiliates and group
members. In addition, we are requesting that you provide detailed
information about the legal status, structure and ownership of
each such entity, affiliate and group member.
Once we have received and reviewed this written information, we
will be in a position to consider the proposals you mention. If
you will send your suggestions in writing to my attention, the
Board will give them the same consideration it gives all
shareholder proposals.
I look forward to hearing from you.
Sincerely,
/s/ James C. Mastandrea
-----------------------
James C. Mastandrea
14
<PAGE>
On September 8, 1997, William A. Ackman of Gotham sent the
following letter to James C. Mastandrea:
Mr. James C. Mastandrea
First Union Real Estate Investments
55 Public Square Suite 1900
Cleveland, OH 44113
Dear Jim:
We are disappointed that the only substantive response to our
letters to you is your request of August 20, 1997 for certain
information from us. We assume that your questions about our
ownership in First Union relate to the Board's concern about the
Trust maintaining its special tax status. We assume that you are
acting in good faith by addressing these questions to us, rather
than attempting to make it cumbersome for us to work with the
Trust in our attempt to increase shareholder value.
Please be assured that we are well aware of the risks to First
Union of a loss of the Company's REIT status or its favorable
paired-share structure. In an effort to be responsive, we have
addressed your questions below.
As of the date hereof, Gotham Partners, L.P., a limited
partnership, is the actual owner of 877,825 common shares of
First Union and constructively owns, within the meaning of
Treasury Regulation 1.857-8(c) and Section 544 of the Internal
Revenue Code (through ownership of an option), an additional
1,183,150 common shares. In addition, as of the date hereof
Gotham Partners II, L.P., a limited partnership, is the actual
owner of 9,075 common shares of First Union and constructively
owns (as defined above) an additional 16,850 common shares.
Neither I nor David Berkowitz, nor any entity under our control,
actually, constructively (as defined above) or beneficially owns
any other equity interests in First Union.
We sincerely hope that now that you have received this
information you will turn to more fundamental issues, in
particular, those raised in our July 14, 1997 letter. As we
stated in that letter, we would welcome the opportunity to meet
with the Board so that we can discuss our concerns and any
proposals we may have in more detail.
Sincerely,
/s/ William A. Ackman
---------------------
William A. Ackman
15
<PAGE>
On October 7, 1997, Mr. Mastandrea sent the following letter to
Mr. Berkowitz:
Mr. David P. Berkowitz
Gotham Partners Management Co. LLC
110 East 42nd Street, 18th Floor
New York, NY 10017
Dear David:
We received your letter of September 8, 1997. It is simply not
responsive to the Board's demand for information about the
structure of your entities and your group. In particular, you are
obligated to provide the names of each and every member of Gotham
I and II, as well as each and every member of other entities who
own First Union stock. Undoubtedly you are aware that you are
obligated under the Declaration of Trust to divulge such
ownership information.
Your partial response and your use of 13D amendments as a media
campaign look more like market games than real shareholder
interest. If you have serious proposals for First Union's future,
provide the ownership information we need, and put your proposals
in writing.
Sincerely,
/s/ James C. Mastandrea
-----------------------
James C. Mastandrea
On January 8, 1998, Gotham sent the following letter to Paul F.
Levin, Secretary of the Company. The full text of the letter and its
exhibits and accompanying documents appear below except for Exhibit C
(the "Description of the Proposal" and the "Reasons for the
Proposal"), which is summarized.
Paul F. Levin, Esq.
Secretary
First Union Real Estate Equity
and Mortgage Investments
55 Public Square, Suite 1900
Cleveland, Ohio 44113-1937
Dear Mr. Levin:
Gotham Partners, L.P. ("Gotham"), a Beneficiary of First
Union Real Estate Equity and Mortgage Investments (the
"Company"), hereby gives notice of the following to the Secretary
16
<PAGE>
of the Company pursuant to Article I, Section 7 of the By-Laws of
the Company:
1. Gotham hereby nominates William A. Ackman, David P.
Berkowitz and James A. Williams for election as Class
II Trustees to the Board of Trustees of the Company at
the 1998 Annual Meeting of Beneficiaries of the Company
(or any Special Meeting of Beneficiaries held in lieu
thereof).
2. Gotham hereby makes the proposal attached as Exhibit A
hereto for consideration by the Beneficiaries at the
1998 Annual Meeting of Beneficiaries of the Company (or
any Special Meeting of Beneficiaries held in lieu
thereof) (the "Proposal").
3. Gotham hereby nominates Daniel Shuchman and Steven S.
Snider for election to the two Class I seats on the
Board of Trustees of the Company created as a result of
the adoption of the Proposal; Mary Ann Tighe and
Stephen J. Garchik for election to the two Class II on
the Board of Trustees of the Company created as a
result of the adoption of the Proposal; and David S.
Klafter and Daniel J. Altobello for election to the two
Class III seats on the Board of Trustees of the Company
created as a result of the adoption of the Proposal;
such elections to be held immediately following the
approval of the Proposal by the Beneficiaries at the
1998 Annual Meeting of Beneficiaries of the Company (or
any Special Meeting held in lieu thereof).
4. Gotham hereby nominates Richard A. Mandel for election
to the Board of Trustees of the Company, provided that
Mr. Mandel shall stand for election only in the event
that any of Gotham's nominees named in paragraphs 1 or
3 above is unable for any reason to serve as a Trustee
of the Company.
Pursuant to Article I, Section 7 of the By-Laws of the
Company, the following documentation is included herewith: (i)
the information specified in Article I, Section 7(c)(i) of the
By-Laws of the Company with respect to each of Gotham's nominees
for election to the Board of Trustees, which is attached as
Exhibit B hereto; (ii) a brief description of the Proposal and a
statement of Gotham's reasons for making the Proposal, which is
attached as Exhibit C hereto; (iii) the information required to
be provided pursuant to Article I, Sections 7(c)(iii), (iv) and
(v) of the By-Laws of the Company, which is attached as Exhibit D
hereto; (iv) a certification by Gotham that each of Gotham's
nominees meets all of the qualifications for Trustees set forth
in the Amended Declaration of Trust of the Company; and (v) a
certification by Gotham that the Proposal does not conflict with
17
<PAGE>
or violate any provision of the Declaration of Trust of the
Company.
If you have any questions concerning this notice or any
related legal matters, please contact our counsel, Alexander R.
Sussman of Fried, Frank, Harris, Shriver & Jacobson, at (212)
859-8551.
Very truly yours,
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P., its general partner
By: DPB Corporation,
a general partner of Section H Partners, L.P.
By: /s/ David P. Berkowitz
----------------------------
David P. Berkowitz
President
By: Karenina Corporation,
a general partner of Section H Partners, L.P.
By: /s/ William A. Ackman
---------------------------
William A. Ackman
President
Exhibit A
---------
Proposal
--------
Gotham Partners, L.P. ("Gotham Partners"), a Beneficiary of
First Union Real Estate Equity and Mortgage Investments ("the
Company"), meeting the qualifications set forth in Article I,
Section 7 of the By-Laws of the Company, sets forth the following
proposal to be considered by the Beneficiaries of the Company at
the Company's 1998 Annual Meeting of Beneficiaries (or any
Special Meeting of Beneficiaries held in lieu thereof):
Proposed, in accordance with Article VIII, Section 8.1 of
the Company's Amended Declaration of Trust, dated July 25, 1986,
18
<PAGE>
(i) that the number of Trustees constituting the full Board
of Trustees of the Company shall be determined at the 1998 Annual
Meeting of Beneficiaries of the Company (or any Special Meeting
of Beneficiaries held in lieu thereof) to be fixed at fifteen (an
increase of six members); and
(ii) that two of the newly-created seats of the Board of
Trustees of the Company be assigned to each of Class I, Class II
and Class III; and
(iii) that, at the 1998 Annual Meeting of Beneficiaries of
the Company (or any Special Meeting of Beneficiaries held in lieu
thereof), in addition to electing the three Trustees to fill the
seats of the three Trustees in Class II whose terms are expiring,
the Beneficiaries of the Company shall also elect six Trustees
(two Trustees to each of Class I, Class II and Class III) to
serve in the newly-created seats established in paragraph (ii)
above.
Exhibit B
---------
Trustee Nominee Information
---------------------------
The following is the information required to be given by
Gotham Partners, L.P. ("Gotham") with respect to its nominees for
election to the Board of Trustees of First Union Real Estate
Equity and Mortgage Investments (the "Company") pursuant to
Article I, Section 7(c) of the By-Laws of the Company. All of
such nominees have an understanding with Gotham whereby they have
agreed to be nominated to the Board of Trustees by Gotham, and to
serve on such Board if elected. In addition, Gotham has agreed to
indemnify each of the nominees for any liability incurred by such
nominee in connection with his or her nomination for election to
the Board of Trustees. None of the nominees has held any position
or office with the Company or with an entity affiliated with the
Company since January 1, 1993.
William A. Ackman
-----------------
Address: 150 Columbus Avenue, Apt. 4D, New York, New York 10023
Date of Birth: May 11, 1966 (age 31)
Citizenship: United States
Business Address: Gotham Partners Management Co. LLC, 110 East
42nd Street, 18th Floor, New York, New York 10017
Employment History: Since January 1, 1993, Mr. Ackman has been
the Vice President, Secretary and Treasurer of GPLP Management
19
<PAGE>
Corp., the Managing Member of Gotham Partners Management Co. LLC,
an investment management firm (and the General Partner of its
predecessor entity). Mr. Ackman has been employed by Gotham
Partners Management Co. LLC and its predecessor entity since
January 1, 1993. Mr. Ackman was a general partner of Section H
Partners, L.P., the General Partner of the Gotham Partners, L.P.
and Gotham Partners II, L.P. investment funds, from January 1,
1993 through September 1993. Mr. Ackman has been the President,
Secretary and Treasurer of Karenina Corporation, a general
partner of Section H Partners, L.P. since October 1993.
Directorships Required to be Reported pursuant to Item 401(e)(2)
of Regulation S-K: None.
Involvement in Legal Proceedings Required to be Reported pursuant
to Item 401(f) of Regulation S-K: None.
Daniel J. Altobello
-------------------
Address: 9727 Avenel Farm Drive, Potomac, Maryland 20854
Date of Birth: February 28, 1941 (age 56)
Citizenship: United States
Business Address: ONEX Food Services, Inc., 6550 Rock Spring
Drive, Bethesda, Maryland 20817
Employment History: Mr. Altobello has been the Chairman of the
Board of ONEX Food Services, Inc., an airline catering company,
since September 1995. Mr. Altobello has been a partner in Ariston
Investment Partners, a consulting firm, since September 1995. Mr.
Altobello was the Chairman, President and Chief Executive Officer
of Caterair International Corporation, an airline catering
company, from January 1, 1993 until September 1995.
Directorships Required to be Reported pursuant to Item 401(e)(2)
of Regulation S-K: Mr. Altobello is a member of the Boards of
Directors of American Management Systems, Inc. and Colorado Prime
Corporation.
Involvement in Legal Proceedings Required to be Reported pursuant
to Item 401(f) of Regulation S-K: None.
David P. Berkowitz
------------------
Address: 2109 Broadway, New York, New York 10023
Date of Birth: March 10, 1962 (age 35)
20
<PAGE>
Citizenship: United States
Business Address: Gotham Partners Management Co. LLC, 110 East
42nd Street, 18th Floor, New York, New York 10017
Employment History: Since January 1, 1993, Mr. Berkowitz has been
the President of GPLP Management Corp., the Managing Member of
Gotham Partners Management Co. LLC, an investment management firm
(and the General Partner of its predecessor entity). Mr.
Berkowitz has been employed by Gotham Partners Management Co. LLC
and its predecessor entity since January 1, 1993. Mr. Berkowitz
was a general partner of Section H Partners, L.P., the General
Partner of Gotham Partners, L.P. and Gotham Partners II, L.P.
investment funds, from January 1993 through September 1993. Mr.
Berkowitz has been the President, Secretary and Treasurer of DBP
Corporation, a general partner of Section H Partners, L.P. since
October 1993.
Directorships Required to be Reported pursuant to Item 401(e)(2)
of Regulation S-K: None.
Involvement in Legal Proceedings Required to be Reported pursuant
to Item 401(f) of Regulation S-K: None.
Stephen J. Garchik
------------------
Address: 9605 Sotweed Drive, Potomac, Maryland 20854
Date of Birth: March 12, 1954 (age 43)
Citizenship: United States
Business Address: The Evans Company, 8251 Greensboro Drive, Suite
850, McLean, Virginia 22102
Employment History: Since January 1, 1993, Mr. Garchik has been
the President of The Evans Company, a commercial real estate
development and management firm. Mr. Garchik has been the
Chairman of Florida Golf Partners, L.P., a golf course ownership,
operation and development enterprise, since July 1996.
Directorships Required to be Reported pursuant to Item 401(e)(2)
of Regulation S-K: None.
Involvement in Legal Proceedings Required to be Reported pursuant
to Item 401(f) of Regulation S-K: None.
21
<PAGE>
David S. Klafter
----------------
Address: 119 Waverly Place, Apt. 3, New York, New York 10011
Date of Birth: February 24, 1955 (age 42)
Citizenship: United States
Business Address: Gotham Partners Management Co. LLC, 110 East
42nd Street, 18th Floor, New York, New York 10017
Employment History: Mr. Klafter has been an in-house counsel and
investment analyst at Gotham Partners Management Co. LLC, an
investment management firm, since April 1996. Mr. Klafter was
counsel at White & Case, a law firm, from January 1, 1993 until
December 1993, and a partner at White & Case from January 1994
until April 1996.
Directorships Required to be Reported pursuant to Item 401(e)(2)
of Regulation S-K: None.
Involvement in Legal Proceedings Required to be Reported pursuant
to Item 401(f) of Regulation S-K: None.
Richard A. Mandel
-----------------
Address: 28 Hilltop Road, Short Hills, New Jersey 07078
Date of Birth: September 1, 1962 (age 35)
Citizenship: United States
Business Address: Kennedy-Wilson International, 1270 Avenue of
the Americas, Suite 1818, New York, New York 10020
Employment History: Mr. Mandel has been the President of the
Brokerage Division of Kennedy-Wilson International, a real estate
brokerage and investment firm, since December 1996. From October
1993 until December 1996, Mr. Mandel was a Managing Director in
charge of the Asian Operations of Kennedy-Wilson International.
From January 1, 1993 until October 1993, he was a Director of
Jones Lang Wootton, a real estate brokerage firm.
Directorships Required to be Reported pursuant to Item 401(e)(2)
of Regulation S-K: Mr. Mandel is a member of the Board of
Directors of Kennedy-Wilson International.
22
<PAGE>
Involvement in Legal Proceedings Required to be Reported pursuant
to Item 401(f) of Regulation S-K: None.
Daniel Shuchman
---------------
Address: 203 East 72nd Street, Apt. 7D, New York, New York 10021
Date of Birth: August 4, 1965 (age 32)
Citizenship: United States
Business Address: Gotham Partners Management Co. LLC, 110 East
42nd Street, 18th Floor, New York, New York 10017
Employment History: Mr. Shuchman has been an investment analyst
at Gotham Partners Management Co. LLC, an investment management
firm, since October 1994. Mr. Shuchman was an investment banker
at Goldman Sachs & Co., an investment banking firm, from January
1, 1993 until August 1994.
Directorships Required to be Reported pursuant to Item 401(e)(2)
of Regulation S-K: None.
Involvement in Legal Proceedings Required to be Reported pursuant
to Item 401(f) of Regulation S-K: None.
Steven S. Snider
----------------
Address: 1624 Foxhall Road, N.W., Washington, D.C. 20007
Date of Birth: December 31, 1956 (age 41)
Citizenship: United States
Business Address: Hale and Dorr LLP, 1455 Pennsylvania Avenue,
N.W., Washington, D.C. 20004
Employment History: Since January 1, 1993, Mr. Snider has been a
senior partner at Hale and Dorr LLP, a law firm.
Directorships Required to be Reported pursuant to Item 401(e)(2)
of Regulation S-K: None.
Involvement in Legal Proceedings Required to be Reported pursuant
to Item 401(f) of Regulation S-K: None.
23
<PAGE>
Mary Ann Tighe
--------------
Address: 1320 York Avenue, Apt. 36B, New York, New York 10021
Date of Birth: August 24, 1948 (age 49)
Citizenship: United States
Business Address: Insignia/ESG, 200 Park Avenue, New York, New
York 10166
Employment History: Since January 1, 1993, Ms. Tighe has been an
Executive Managing Director and a member of the Executive and
Strategic Planning Committees of Insignia/ESG, a commercial real
estate firm.
Directorships Required to be Reported pursuant to Item 401(e)(2)
of Regulation S-K: None.
Involvement in Legal Proceedings Required to be Reported pursuant
to Item 401(f) of Regulation S-K: None.
James A. Williams
-----------------
Address: 3518 Franklin Road, Bloomfield Hills, Michigan 48382
Date of Birth: March 30, 1942 (age 55)
Citizenship: United States
Business Address: Williams, Williams, Ruby & Plunkett PC, 380 N.
Woodward Avenue, Suite 380, Birmingham, Michigan 48009
Employment History: Since January 1, 1993, Mr. Williams has been
the President of Williams, Williams, Ruby & Plunkett PC, a law
firm. Mr. Williams has also been the Chairman of Michigan
National Bank and Michigan National Corporation since November
1995.
Directorships Required to be Reported pursuant to Item 401(e)(2)
of Regulation S-K: None.
Involvement in Legal Proceedings Required to be Reported pursuant
to Item 401(f) of Regulation S-K: None.
24
<PAGE>
Exhibit C
---------
Exhibit C states that the description of the Gotham Proposal
is to increase the number of Trustees on the Company's Board of
Trustees from its current composition of nine members to fifteen
members and to hold an election of Trustees to fill the
newly-created positions along with the three seats whose terms
are expiring. Exhibit C also reviews in its section on the
"Reasons for the Proposal" the correspondence between Gotham and
Gotham II and the Company and the performance of the Shares for
periods since Mr. Mastandrea became Chairman of the Company, and
states that in order to implement steps to maximize shareholder
value, Gotham is seeking majority representation on the Board of
Trustees at the Annual Meeting.
Gotham states that upon gaining majority representation on
the Company's Board of Trustees and after reviewing relevant
information about the business and operations of the Company, it
expects that the new board would propose changes in the
management of the Company, but that it had not identified new
management. In addition, after careful analysis of various
factors, in particular the value-maximization strategies of the
other paired-share REITs, the new board may cause the Company to
change its strategic direction, including, without limitation,
identifying a strategic partner or partners, pursuing
acquisitions in other real-estate-intensive operating businesses,
disposing of non-core assets and/or seeking the sale of the
Company in a single transaction or a series of transactions which
would preserve and maximize the value of the Company's
stapled-stock structure, although Gotham did not have any
specific plans regarding any of the foregoing.
Exhibit D
---------
Proponent Information
---------------------
The following is the information required to be given
pursuant to Article I, Sections 7(c)(iii), (iv) and (v) of the
By-Laws of First Union Real Estate Equity and Mortgage
Investments (the "Company") by a Beneficiary offering a
nomination or proposal:
1. Name and address of the Beneficiary making the proposal
or nomination (the "Proponent") as they appear in the share
transfer books of the Company: Gotham Partners, L.P., 110 East
42nd Street, New York, New York 10017
2. Name and address of any other Beneficiary known by the
Proponent to be supporting the nomination and proposal: Gotham
Partners II, L.P., 110 East 42nd Street, New York, New York 10017
25
<PAGE>
3. The class and number of shares of Beneficial Interest of
the Company ("Shares") owned by the Proponent: Gotham Partners,
L.P. owns 1,998,301 Shares and holds an option to acquire 493,150
Shares.
4. The class and number of Shares owned by any Beneficiaries
described in paragraph 2 above: Gotham Partners II, L.P. owns
23,599 Shares and holds an option to acquire 6,850 Shares.
5. Any financial interest of the Proponent in the
Proponent's proposal: Gotham has no interest in the Proposal
other than its interest as an owner of Shares and an option to
acquire Shares.
26
<PAGE>
Certification of Nominees
-------------------------
Pursuant to Article I, Section 7(c) of the By-Laws of First
Union Real Estate Equity and Mortgage Investments (the
"Company"), the undersigned, Gotham Partners, L.P., a Beneficiary
of the Company, hereby certifies that each of its nominees for
election to the Board of Trustees of the Company at the 1998
Annual Meeting of Beneficiaries of the Company (or any Special
Meeting of Beneficiaries held in lieu thereof), a list of whom is
attached hereto as Exhibit A, meets all the qualifications for
Trustees set forth in the Declaration of Trust of the Company,
including, but not limited to, Section 8.10 thereof.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate on this 8th day of January, 1998.
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.,
its general partner
By: DPB Corporation,
a general partner of Section H Partners, L.P.
By: /s/ David P. Berkowitz
----------------------
David P. Berkowitz
President
By: Karenina Corporation,
a general partner of Section H Partners, L.P.
By: /s/ William A. Ackman
-----------------------
William A. Ackman
President
27
<PAGE>
Exhibit A
---------
Nominees
--------
William A. Ackman
Daniel J. Altobello
David P. Berkowitz
Stephen J. Garchik
David S. Klafter
Richard A. Mandel
Daniel Shuchman
Steven S. Snider
Mary Ann Tighe
James A. Williams
Certification of Proposal
-------------------------
Pursuant to Article I, Section 7 of the By-Laws of First
Union Real Estate Equity and Mortgage Investments (the
"Company"), the undersigned, Gotham Partners, L.P., a Beneficiary
of the Company, hereby certifies that its proposal to be brought
before the 1998 Annual Meeting of Beneficiaries of the Company
(or any Special Meeting of Beneficiaries held in lieu thereof), a
copy of which is attached as Exhibit A hereto, does not conflict
with or violate any provisions of the Declaration of Trust of the
Company.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate on this 8th day of January, 1998.
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.,
its general partner
By: DPB Corporation,
a general partner of Section H Partners, L.P.
By: /s/ David P. Berkowitz
----------------------
David P. Berkowitz
President
By: Karenina Corporation,
a general partner of Section H Partners, L.P.
By: /s/ William A. Ackman
---------------------
William A. Ackman
President
28
<PAGE>
Exhibit A
---------
Proposal
--------
Gotham Partners, L.P. ("Gotham Partners"), a Beneficiary of
First Union Real Estate Equity and Mortgage Investments ("the
Company"), meeting the qualifications set forth in Article I,
Section 7 of the By-Laws of the Company, sets forth the following
proposal to be considered by the Beneficiaries of the Company at
the Company's 1998 Annual Meeting of Beneficiaries (or any
Special Meeting of Beneficiaries held in lieu thereof):
Proposed, in accordance with Article VIII, Section 8.1 of
the Company's Amended Declaration of Trust, dated July 25, 1986,
(i) that the number of Trustees constituting the full Board
of Trustees of the Company shall be determined at the 1998 Annual
Meeting of Beneficiaries of the Company (or any Special Meeting
of Beneficiaries held in lieu thereof) to be fixed at fifteen (an
increase of six members); and
(ii) that two of the newly-created seats of the Board of
Trustees of the Company be assigned to each of Class I, Class II
and Class III; and
(iii) that, at the 1998 Annual Meeting of Beneficiaries of
the Company (or any Special Meeting of Beneficiaries held in lieu
thereof), in addition to electing the three Trustees to fill the
seats of the three Trustees in Class II whose terms are expiring,
the Beneficiaries of the Company shall also elect six Trustees
(two Trustees to each of Class I, Class II and Class III) to
serve in the newly-created seats established in paragraph (ii)
above.
29
<PAGE>
On January 16, 1998, Mr. Levin sent the following letter to
Gotham:
Gotham Partners, L.P.
10 East 42nd Street
New York, New York 10017
Attn: Mr. David P. Berkowitz
Mr. William A. Ackman
Gentlemen:
The Board of Trustees (the "Board") of First Union Real
Estate Equity and Mortgage Investments (the "Trust") has received
your notice dated January 8, 1998 (the "Notice"), and, pursuant
to Article I, Section 7(d) of the By-Laws of the Trust, hereby
gives notice to Gotham Partners, L.P. that the Notice does not
satisfy the informational requirements of such Section and is
therefore deficient. Because Gotham's Notice is deficient, the
proposal and nominations contained in such Notice cannot be
presented for action at the 1998 Annual Meeting of Beneficiaries
of the Trust (the "Annual Meeting"). However, Gotham may provide
curative information to the Secretary of the Trust within five
(5) days from the date hereof.
As provided in Article I, Section 7(d) of the By-Laws,
Gotham's Notice must set forth as to each nomination or proposal
(i) the name and address of, and the class and number of shares
of the Trust's capital shares which are beneficially owned by,
any other beneficiaries of the Trust known by Gotham to be
supporting such nomination or proposal on the date of the Notice
and (ii) any financial interest of any such beneficiaries in such
proposal.
This notice addresses only those deficiencies in the
Notice that are capable of being cured. The Trust does not waive
any other requirements of the Declaration of Trust or By-Laws of
the Trust or any deficiencies that are not curable. The Board
reserves the right to omit from consideration at the Annual
Meeting any proposal or nomination that has not been properly
made.
Sincerely,
/s/ Paul F. Levin
-----------------
Paul F. Levin
Secretary
30
<PAGE>
On January 16, 1998, the Company issued the following press
release:
FIRST UNION FILES SUIT AGAINST GOTHAM
Cleveland, Ohio, January 16, 1998 -- First Union Real Estate
Investments (NYSE: FUR) today announced that it has filed a
lawsuit in the Common Pleas Court of Cuyahoga County, Ohio
against two Gotham Partners limited partnerships.
New York-based Gotham recently filed a notice with the Trust and
in a Schedule 13-D that it intends to nominate a slate of three
individuals to oppose incumbent Trustees, including its Chairman,
James C. Mastandrea, and Herman J. Russell and James M. Delaney,
for election to First Union's Board of Trustees at the Trust's
1998 Annual Shareholders' Meeting. Gotham also stated that it
intends to propose that the size of the Board be expanded from
nine to 15 members, and purports to nominate candidates for those
prospective new seats as well. First Union asserts in its
complaint that Gotham's proposals violate First Union's
Declaration of Trust and its By Laws, and could cause permanent
damage to the Trust and its shareholders.
Mastandrea stated, "We filed this lawsuit to protect the
integrity of our Declaration of Trust and minimize any potential
damage which may have been created."
First Union Real Estate Investments is a stapled-stock real
estate investment trust (REIT) and its shares are traded on the
New York Stock Exchange.
31
<PAGE>
On January 20, 1998, Gotham sent the following letter to Mr.
Levin:
Paul F. Levin, Esq.
Secretary
First Union Real Estate Equity
and Mortgage Investments
55 Public Square, Suite 1900
Cleveland, Ohio 44113-1937
Dear Mr. Levin:
In response to your letter notice to Gotham Partners, L.P.,
dated January 16, 1998, we note that your purported notice is
defective and ineffectual in at least three respects. First, your
letter notice states that, "As provided in Article I, Section
7(d) of the By-Laws, Gotham's notice must set forth as to each
nomination and proposal" certain information; but Section 7(d)
has no such requirement. Second, the Board of Trustees has failed
to identify, as required by Article I, Section 7(d) of the
By-Laws, the "material respect" in which Gotham Partners, L.P.'s
notice of nominations and proposal, dated January 8, 1998 (the
"Notice"), allegedly does not satisfy the information
requirements of Section 7(c). Third, Gotham Partners, L.P.'s
notice did respond to the requirements of Section 7(c) and,
therefore, your quoting those requirements in your letter is
inadequate to allow Gotham Partners, L.P. to correct any alleged
deficiency.
Notwithstanding the foregoing and without waiving any of our
rights, we hereby provide First Union Real Estate Equity and
Mortgage Investments ("First Union"), the following information:
1. Gotham Partners II, L.P., is known by Gotham Partners,
L.P. to support its nominations and proposal.
2. The address of Gotham Partners II, L.P. is 110 East 42nd
Street, 18th Floor, New York, New York 10017.
3. Gotham Partners II, L.P. is the owner of 23,599 shares of
Beneficial Interest of the Company, par value $1.00 per share
(the "Shares"), and holds an option to acquire 6,850 Shares.
4. Other than through its ownership of Shares described in
item 3, Gotham Partners II, L.P. has no financial interest in the
proposal referred to above.
5. Gotham Partners, L.P. does not have knowledge of any
other beneficiary of First Union supporting its nominations or
proposal as of the date of the Notice.
32
<PAGE>
The foregoing is hereby incorporated by reference and made a
part of the notice.
Gotham Partners, L.P. believes that its Notice satisfies the
requirements of the Declaration of Trust and By-Laws of First
Union, including without limitation the informational
requirements of Article I, Section 7(c) of the By-Laws of First
Union. If this does not comport with the understanding of First
Union, we expect that you will provide immediate notice of that
position. If First Union does not comply with the preceding
sentence and attempts to omit the proposal or any of the
nominations made by Gotham Partners, L.P., from consideration at
the 1998 Annual Meeting of the Beneficiaries of First Union (or
any special meeting of Beneficiaries of First Union called in
lieu thereof), we intend to pursue all of our rights and
remedies.
Please direct all future correspondence relating to this
matter to both of our litigation counsel, Alexander R. Sussman at
Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New
York, New York 10004, and David C. Weiner at Hahn, Loeser & Parks
LLP, 3300 BP America Building, 200 Public Square, Cleveland, Ohio
44114-2301.
Very truly yours,
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.,
its general partner
By: Karenina Corporation,
a general partner of Section H Partners, L.P.
By: /s/ William A. Ackman
---------------------
William A. Ackman
President
By: DPB Corporation,
a general partner of Section H Partners, L.P.
By: /s/ David P. Berkowitz
----------------------
David P. Berkowitz
President
33
<PAGE>
On January 20, 1998, Alexander R. Sussman of Fried, Frank,
Harris, Shriver & Jacobson, special counsel to Gotham and Gotham II,
and David C. Weiner of Hahn, Loeser & Parks LLP, co-counsel, sent a
letter to Frances Floriano Goins of Squire, Sanders & Dempsey, L.L.P.,
counsel to the Company. Mr. Sussman and Mr. Weiner urged the Company
to desist from what they believed were entrenchment tactics and
harassing litigation in responding to the Gotham Proposal and the
Gotham Nominations. The letter continues as follows:
. . . Gotham I seeks to give First Union Beneficiaries/stock-
holders a choice about the company's future management, business
direction and value maximization strategy, by allowing stockholders
the option to vote for Gotham I's nominations and proposal. At a
minimum, it is obviously in the interest of First Union and all of
its stockholders to avoid unnecessary and wasteful costs and burdens
during the forthcoming proxy contest. We believe the contest should
be decided in a businesslike manner, with free stockholder choice,
full disclosure, and a vote on the merits of the Trustee candidates
and their plans for First Union.
Any disputes between the parties should be resolved without
litigation. If there is to be litigation, however, it should come
after the April 14 Annual Meeting and stockholder vote, in order
to avoid costly distraction during the proxy contest and
premature judicial consideration of issues that may be mooted by
the outcome of the contest. Accordingly, we are making the
following demands and taking the following actions:
1. As the first order of business, First Union's purported
"notice of deficiency" with respect to Gotham I's notice, dated
January 8, 1998 of Gotham I's nominations and proposal pursuant
to Article I, Section 7 of First Union's By-Laws ("Gotham I's
Notice"), must be resolved immediately. Despite Gotham I's
express request on page 2 of Gotham I's Notice that any questions
be addressed to Mr. Sussman, the "notice of deficiency" was sent
by Paul Levin, First Union's Secretary, in a letter to Gotham I,
dated January 16, 1998, and was referenced in a lawsuit filed on
that date, without any prior communication to Gotham I or to Mr.
Sussman.
34
<PAGE>
We are enclosing a copy of Gotham I's letter response, dated
as of today, to Mr. Levin's unexplained statement that Gotham I's
Notice "does not satisfy the informational requirements of [First
Union's By-Laws] and is therefore deficient." As Gotham I's
letter explains, Mr. Levin's purported notice was defective and
ineffectual. Moreover, we believe that Gotham I's Notice was in
full compliance with the Trust and By-Laws as well as the
informational requirements of Article I, Section 7(c) of the
By-Laws. In any case, any information that was not provided was
immaterial and any purported deficiency was similarly immaterial
and did not require any further response.
According to Mr. Levin's letter, "Gotham may provide
curative information to the Secretary of the Trust within five
(5) days from the date hereof [January 16, 1998]." Since the cure
period ends tomorrow, Wednesday, January 21, 1998, we require that
you advise us by 2:00 p.m. today whether the Notice, as amended,
is deemed effective and not deficient by First Union. If you
cannot so advise me by that time, we ask that you be available
this afternoon at 2:00 p.m. to join us in a conference call with
the federal court (see Point 3 below), so that we may arrange for
a hearing to be held at the Court's convenience tomorrow,
Wednesday, January 21, 1998. At such hearing we plan to petition
the Court for appropriate relief to protect the Gotham
Partnerships from any claim that the informational requirements
of First Union's By-Laws have not timely been met.
2. This morning, the Gotham Partnerships have removed First
Union's state court lawsuit to the United States District Court
for the Northern District of Ohio, Eastern Division. Enclosed is
a copy of the Notice of Removal. There is diversity between the
parties and any litigation between First Union and the Gotham
Partnerships will be in the context of a proxy contest with proxy
violation claims subject to the federal court's exclusive
jurisdiction.
3. Despite our preference that disputes between the parties
either be resolved without court intervention or subsequent to
the vote at First Union's Annual Meeting, in order to protect the
Gotham Partnerships' rights, we have filed counterclaims in the
removed federal action. We are herewith serving the Answer and
Counterclaim along with our initial discovery requests.
4. As set forth in our federal counterclaims, First Union's
management and Trustees have a fiduciary obligation to act in a
manner consistent with the interests of First Union and its
stockholders. While we have not named any individual counterclaim
defendants, we reserve the Gotham Partnerships' right to do so
should any individuals violate their fiduciary duties to the
Trust and its stockholders.
We look forward to hearing from you before 2:00 p.m. today,
as requested above.
Sincerely,
/s/ Alexander R. Sussman /s/ David C. Weiner
------------------------ -------------------
Alexander R. Sussman David C. Weiner
35
<PAGE>
On January 20, 1998, Mr. Levin sent the following letter to
Gotham:
Gotham Partners, L.P.
110 East 42nd Street, 18th Floor
New York, New York 10017
Attn: Mr. David P. Berkowitz
Mr. William A. Ackman
Gentlemen:
In response to your letter dated January 20, 1998 and its
attempt to cure deficiencies in providing information required by
Article I, Section 7(c) of First Union's By-Laws, the Notice (as
defined in your letter) continues to be deficient in not
identifying limited partners and other Beneficiaries and
beneficial owners who support Gotham's proposal and nominations.
Sincerely,
/s/ Paul F. Levin
-----------------
Paul F. Levin
Secretary
36
<PAGE>
On January 21, 1998, Gotham sent the following letter to the
Secretary of the Company:
Paul F. Levin, Esq.
Secretary
First Union Real Estate Equity
and Mortgage Investments
55 Public Square, Suite 1900
Cleveland, Ohio 44113-1937
Dear Mr. Levin:
We are in receipt of your letter of January 20, 1998, in
which you contend that the notice of nominations and proposal
submitted by Gotham Partners, L.P. ("Gotham"), dated January 8,
1998 (the "Notice"), as supplemented by Gotham's letter, dated
January 20, 1998, does not satisfy the informational requirements
of Article I, Section 7(c) ("Section 7(c)") of First Union's
By-Laws, because it allegedly "continues to be deficient in not
identifying limited partners and other Beneficiaries and
beneficial owners who support Gotham's proposal and nominations."
Gotham continues to believe that your notice of deficiencies is
defective and ineffectual and that Gotham's Notice satisfies the
requirements of Section 7(c).
Notwithstanding the foregoing and without waiving any of our
rights, to the extent you are making a technical objection to our
Notice, we hereby provide First Union the additional information
attached hereto as Exhibit A.
To the extent First Union's position results from its
disbelieving our certification that Gotham Partners II, L.P. is
the only "other Beneficiar[y] known by such Beneficiary [Gotham]
to be supporting [Gotham's] nomination or proposal on the date of
such Beneficiary's notice," which is the information required by
Section 7(c), we would like to reconfirm that, as of the date of
the Notice and as of today's date, Gotham has no knowledge of any
Beneficiary or beneficial owner of any Shares, other than the
Shares beneficially owned by Gotham and Gotham II as set forth on
Exhibit A hereto, that is known to be supporting its nominations
or proposal.
We request your confirmation that Gotham has satisfied
Section 7(c)'s informational requirements.
If you still contend that our Notice and the additional
information we have provided today and yesterday is somehow
deficient, we request that you provide immediate notice of that
position and additional time to cure.
37
<PAGE>
If First Union does not confirm that Gotham's Notice
complies with Section 7(c), Gotham reserves all of its rights and
remedies and will seek appropriate relief, if and when required,
in the pending federal court action.
Very truly yours,
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.,
its general partner
By: Karenina Corporation,
a general partner of Section H Partners, L.P.
By: /s/ William A. Ackman
---------------------
William A. Ackman
President
By: DPB Corporation,
a general partner of Section H Partners, L.P.
By: /s/ David P. Berkowitz
----------------------
David P. Berkowitz
President
Exhibit A
---------
We hereby provide First Union Real Estate Equity and
Mortgage Investments ("First Union"), the following information,
which shall be incorporated and made a part of the notice (the
"Notice") of Gotham Partners, L.P. ("Gotham") to First Union
relating to its proposal and nominations for consideration at
First Union's 1998 Annual Meeting of Beneficiaries (or any
special meeting held in lieu thereof):
Gotham is the record and beneficial owner of 100 shares of
Beneficial Interest, par value $1.00, of First Union (the
"Shares"), and the beneficial owner of an additional 2,491,351
Shares (including an option to purchase 493,150 Shares). Gotham
Partners II, L.P. ("Gotham II") is the beneficial owner of 30,449
Shares (including an option to purchase 6,850 Shares). The option
agreements in connection with the options to acquire Shares held
by Gotham and Gotham II are attached as exhibits to the Schedule
13D of Gotham and Gotham II, as amended, which is incorporated
herein by reference. Cede & Co. is the record owner of the Shares
38
<PAGE>
of which Gotham is the beneficial owner and not the record owner,
and is the record holder of all of the Shares of which Gotham II
is the beneficial holder. The address of Cede & Co. is 55 Water
Street, New York, New York 10041-0099. Gotham and Gotham II
intend to instruct Cede & Co. to vote such Shares held of record
by Cede & Co. in favor of the proposal and nominations presented
in the Notice. In addition, we note the following: the general
partner of Gotham is Section H Partners, L.P. The general
partners of Section H Partners, L.P. are Karenina Corporation and
DPB Corporation. William A. Ackman is the President and sole
shareholder of Karenina Corporation. David P. Berkowitz is the
President and sole shareholder of DPB Corporation. In such
indicated capacities, Section H Partners, L.P., Karenina
Corporation, DPB Corporation, William A. Ackman and David P.
Berkowitz may be deemed to be beneficial owners of the Shares
described above as beneficially held by Gotham and Gotham II. All
of such entities and persons support the nominations and proposal
made by Gotham in the Notice, and the address of each of such
entities and persons is care of 110 East 42nd Street, 18th Floor,
New York, New York 10017. Other than through their respective
interests in the Shares described above, none of such entities or
persons has any financial interest in the proposal set forth in
the Notice or is a Beneficiary or beneficial owner of any other
Shares.
Except as described herein and in the Notice, Gotham has no
knowledge of any Beneficiary or beneficial owner of Shares that
was known to be supporting its proposal and nominations as of the
date of the Notice or is known to be supporting its proposal and
nominations as of today's date.
In addition, although we do not believe that the By-Laws of
First Union require us to disclose the following information to
First Union, in response to your letter, dated January 20, 1998,
Gotham states that it does not have any knowledge of any limited
partner of Gotham or Gotham II who supported Gotham's proposal
and nominations on the date of the Notice, or, indeed, who
supports such proposal and nominations as of today, other than
those limited partners who are also nominees of Gotham. David S.
Klafter and Daniel Shuchman are limited partners of Section H
Partners, L.P. and of Gotham. Mary Ann Tighe and James A.
Williams are limited partners of Gotham. None of such persons are
Beneficiaries or beneficial owners of any Shares.
The Notice and supplements thereto provided by Gotham to
First Union assume that the definition of the term "beneficial
ownership" is that contained in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended. If this is not the case, you
should inform us immediately of such other definition used by
First Union.
39
<PAGE>
On January 30, 1998, Gotham sent the following letter and
certificate to the Secretary of the Company.
Paul F. Levin, Esq.
Secretary
First Union Real Estate Equity
and Mortgage Investments
55 Public Square, Suite 1900
Cleveland, Ohio 44113-1937
Dear Mr. Levin:
Gotham Partners, L.P. ("Gotham") is a holder of record of
shares of Beneficial Interest, par value $1.00 per share
("Shares"), of First Union Real Estate Equity and Mortgage
Investments (the "Company"), and is entitled to vote its Shares
at the 1998 Annual Meeting of Beneficiaries of or any special
meeting held in lieu thereof (the "Annual Meeting"). In
connection with its proposal and nominations to be presented for
consideration at the Annual Meeting, Gotham hereby requests that,
pursuant to Rule 14a-7 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Company elect
to either provide Gotham with a list of all of the record holders
of Shares (in such form as is required by Rule 14a-7 and as is
set forth below) or to mail Gotham's soliciting materials
(including proxy statements, forms of proxy and other soliciting
materials to be furnished by Gotham) to the record holders of
Shares. The Company is required to notify Gotham of its election
within five business days of the date hereof.
In the event that the Company elects to provide Gotham with
a list of the record holders of Shares, Gotham hereby requests,
and the Company is required to deliver to Gotham within five
business days of the date hereof, (i) a reasonably current list
of the names, addresses and security positions of all of the
record holders, including banks, brokers and similar entities,
holding Shares and other securities of the Company in the same
class or classes as holders which have been or are to be
solicited on management's behalf; and (ii) the most recent list
of names, addresses and security positions of beneficial owners
as specified in Rule 14a-13(b) promulgated under the Exchange
Act, in the possession of the Company, or which subsequently
comes into the possession of the Company. In addition, if the
Company makes this election, the Company shall furnish Gotham
with updated record holder information on a daily basis or, if
not available on a daily basis, at the shortest reasonable
interval, through the record date of the Annual Meeting.
40
<PAGE>
In the event that the Company elects to mail Gotham's
soliciting materials, the Company shall mail copies of any proxy
statement, form of proxy or other soliciting material furnished
by Gotham to all of the record holders of Shares, including
banks, brokers or similar entities. The Company is required to
mail a sufficient number of copies to the banks, brokers and
similar entities for distribution to all beneficial owners of
Shares. The Company is further required to mail Gotham's
materials with reasonable promptness after tender of the material
to be mailed, envelopes or other containers therefor, postage or
payment for postage and other reasonable expenses of effecting
such mailing.
Gotham also requests, pursuant to clause (a)(1) of Rule
14a-7, that the Company provide Gotham with the following
information within five business days of the date hereof:
(i) a statement of the approximate number of record holders
and beneficial holders of the Company's securities, separated by
type of holder and class, owning Shares or other securities in
the same class or classes as holders which have been or are to be
solicited on management's behalf; and
(ii) the estimated cost of mailing a proxy statement, form
of proxy or other communication to such holders, including to the
extent known or reasonably available, the estimated costs of any
bank, broker, and similar person through whom the Company has or
intends to solicit beneficial owners in connection with the
Annual Meeting.
Enclosed herewith is the certification of Gotham given
pursuant to clause (c)(2) of Rule 14a-7.
Very truly yours,
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.,
its general partner
By: Karenina Corporation,
a general partner of Section H Partners, L.P.
By: /s/ William A. Ackman
---------------------
William A. Ackman
President
41
<PAGE>
By: DPB Corporation,
a general partner of Section H Partners, L.P.
By: /s/ David P. Berkowitz
----------------------
David P. Berkowitz
President
42
<PAGE>
Certificate
-----------
The undersigned, Gotham Partners, L.P. ("Gotham"), hereby
certifies as follows:
1. The list of security holders of First Union Real Estate
Equity and Mortgage Investments (the "Company") which Gotham has
requested from the Company will be used to solicit proxies in
connection with its proposal and nominations to be presented for
consideration at the 1998 Annual Meeting of Beneficiaries of the
Company or any special meeting held in lieu thereof (the "Annual
Meeting"), which are set forth in Gotham's Notice to the
Secretary of the Company dated January 8, 1998.
2. Gotham will not use the information contained in such
list of security holders for any purpose other than to
communicate with or solicit security holders regarding the Annual
Meeting.
3. Gotham will not disclose the information contained in
such list of security holders to any person other than an
employee or agent of Gotham to the extent necessary to effectuate
such communication or solicitation.
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.,
its general partner
By: Karenina Corporation,
a general partner of Section H Partners, L.P.
By: /s/ William A. Ackman
---------------------
William A. Ackman
President
By: DPB Corporation,
a general partner of Section H Partners, L.P.
By: /s/ David P. Berkowitz
----------------------
David P. Berkowitz
President
43
<PAGE>
On February 2, 1998, the Secretary of the Company sent the
following letter to Gotham and Gotham II:
Gotham Partners, L.P.
Gotham Partners II, L.P.
110 East 42nd Street, 18th Floor
New York, New York 10017
Attn: Mr. David P. Berkowitz
Mr. William A. Ackman
Gentlemen:
As you know, the Board of Trustees of First Union Real
Estate Equity and Mortgage Investments ("First Union") has
determined that securities of First Union claimed to be owned by
you constitute "Excess Securities" pursuant to First Union's
Declaration of Trust and By-Laws. Despite the fact that the
holders of Excess Securities have no right to dividends, you may
receive funds representing the dividend declared on December 3,
1997 due to certain agreements between Depository Trust Company
and its members and various transfer agents.
In accordance with the provisions of First Union's By-Laws,
you have no right to any such dividend payments for so long as
you hold Excess Securities, and you hold such payments as agent
for First Union. This result applies to the November payment as
well. Any transfer by you of these payments to your limited
partners will be at your risk and in violation of the Declaration
of Trust.
Sincerely,
/s/ Paul F. Levin
------------------
Paul F. Levin
Senior Vice President,
General Counsel and Secretary
44
<PAGE>
On February 3, 1998, the Secretary of the Company sent the
following letter to William A. Ackman and David P. Berkowitz:
William A. Ackman
David P. Berkowitz
Gotham Partners, L.P.
110 East 42nd St., 18th Floor
New York, NY 10017
Gentlemen:
In response to your request that First Union notify Gotham
whether First Union will provide Gotham a shareholder list or
mail Gotham's soliciting materials, First Union has no plans to
do either.
As you know, First Union's Board of Trustees has determined,
pursuant to the Declaration of Trust and By-Laws, that Gotham's
shares are "Excess Securities." As provided in Article VI,
Section 6 of the By-Laws:
As the equivalent of treasury Securities for such
purposes, the Excess Securities shall not be entitled
to any voting rights; shall not be considered to be
outstanding for quorums or voting purposes; and shall
not be entitled to receive interest or any other
distribution with respect to the Securities.
Consequently, under the Declaration of Trust and By-Laws, your
Excess Securities are really treasury shares and are outside the
coverage of Regulation 14(a)-7.
Very truly yours,
/s/ Paul F. Levin
-----------------
Paul F. Levin
45
<PAGE>
On February 3, 1998, James C. Mastandrea sent the following
letter to William A. Ackman and David P. Berkowitz:
Mr. William A. Ackman
Mr. David P. Berkowitz
Gotham Partners, L.P.
110 East 42nd Street, 18th Floor
New York, NY 10017
Gentlemen:
As you are aware, the Clinton budget proposal has already had a
dramatic impact on paired share REITs and certainly has the
potential to alter any plans either of us might have had for
First Union. As Chairman, I am concerned that our shareholders
have seen the value of their First Union holdings negatively
impacted since the beginning of the year. According to newspaper
accounts, the publicity generated in connection with last year's
takeover battle involving Starwood and ITT contributed to a
climate of controversy where negative points of view regarding
the paired share provision found their way into the media and now
into proposed tax policy.
Recognizing that some of the extraordinary opportunities
available to First Union may be eliminated in the next few
months, we have very little time to make investments that will be
advantageous by utilizing our structure.
While I don't intend to comment on the merits of your intended
proxy fight, it is obvious that it will be time consuming and
costly to both of us and only serve to distract us as the window
of opportunity closes. The relevance of a proxy contest and its
attendant litigation pales next to our mutual concern about
shareholder values.
I believe that we should meet to determine if our concerns
regarding the budget proposal merit our working together in the
brief time remaining, and if all of the shareholders' interests
might best be addressed by cooperation rather than protracted and
costly litigation. I have asked our attorneys to postpone further
filings to give us a chance to meet, and look forward to hearing
46
<PAGE>
from you tomorrow afternoon, no later than 5:00 p.m. Otherwise, I
must assume that our present course is your preference.
Very truly yours,
/s/ James C. Mastandrea
-------------------------------
James C. Mastandrea
Chairman and Chief Executive Officer
On February 5, 1998, Gotham and Gotham II stated in the
seventeenth amendment to the Schedule 13D relating to their interest
in the Company that the meeting requested by Mr. Mastandrea's February
3, 1998 letter to Messrs. Ackman and Berkowitz took place on February
4, 1998.
CERTAIN LITIGATION
On January 16, 1998, the Company filed a civil action against
Gotham and Gotham II in the Court of Common Pleas, Cuyahoga County,
Ohio, captioned First Union Real Estate Equity and Mortgage
Investments v. Gotham Partners, L.P., et al., Case No. 347063. The
Company alleges, among other things, that Gotham has failed to provide
information requested of it pursuant to the Company's Declaration of
Trust and By-Laws, and that therefore Gotham's Shares should be deemed
to be Excess Securities under the Company's By-Laws. Under the
Company's By-Laws, Shares that are deemed to be Excess Securities are
not entitled to any voting rights, not considered to be outstanding
for quorum or voting purposes and are not entitled to receive
dividends. The Company claims that because Gotham's Shares were Excess
Securities at the time Gotham made the Gotham Proposal and the
nomination of the Gotham Nominees, Gotham was not entitled to present
them or any other matter for consideration at the Annual Meeting.
In addition, the Company's complaint alleges that Gotham has
failed to comply with certain provisions of the By-Laws, by not
disclosing other shareholders who support the Gotham Proposal and the
Gotham Nominees and the holdings of those supporters. The Complaint
further alleges that Gotham has failed to disclose the Gotham
Nominees' purported financial interests in the Gotham Proposal.
Specifically, the Complaint alleges that Gotham failed to disclose
that one of the Gotham Nominees, Daniel J. Altobello, has a financial
interest in the Gotham Proposal because he is an executive of an
entity affiliated with certain entities that are parties to a
"Put-Call Agreement" with the Company. See "Possible Effects of the
Adoption of the Gotham Proposal and the Election of the Gotham
47
<PAGE>
Nominees" and "Schedule I." Paragraph 38 of the Complaint further
alleges that the Gotham Nominees are unqualified to serve as Trustees
because they own "more than 1% of the securities of, or [are]
otherwise affiliated with another [real estate investment trust], or
own more than 1% of the securities of, or [are] otherwise affiliated
with any real estate company that competes with" the Company for
investments.
Gotham believes that the Company's allegations and claims are
without merit, and Gotham intends to vigorously defend against such
allegations and claims.
The complaint seeks, among other things, preliminary and
permanent declaratory and injunctive relief to (i) determine that
Gotham and Gotham II's Shares be deemed Excess Securities that have no
voting rights and may not be considered for quorum or voting purposes;
(ii) declare null and void the Gotham Proposal and the nomination of
the Gotham Nominees; and (iii) prohibit Gotham and Gotham II from
supporting or soliciting proxies on behalf of the Gotham Proposal or
the Gotham Nominees. If the Company obtains a court order granting the
declaratory and injunctive relief it is seeking, the Gotham Proposal
and Gotham's nominations could not be brought before the Beneficiaries
at the Annual Meeting. Gotham believes that the Company is not
entitled to any relief.
On January 20, 1998, Gotham removed the Company's action from the
Court of Common Pleas for Cuyahoga County, Ohio, to the United States
District Court for the Northern District of Ohio, where it was
assigned Case No. 98CV105. On that date, Gotham also filed an answer
and asserted counterclaims, which were amended on January 23, 1998,
against the Company seeking, among other things, injunctive relief
prohibiting the Company from interfering with Gotham's submission of
the Gotham Proposal and the nomination of the Gotham Nominees for a
vote at the Annual Meeting. The counterclaims allege, among other
things, that the Company has violated the Securities and Exchange Act
of 1934, as amended (the "Exchange Act"), by: (i) actively soliciting
proxies in violation of the filing requirements of the SEC proxy
rules; (ii) interfering with Gotham's right as security holder to
present nominations and proposals; and (iii) interfering with Gotham's
right as a security holder to vote its Shares. The counterclaims also
allege that the Company's management and Trustees have violated their
fiduciary duty to shareholders by wasting assets and seeking to
entrench the position of the Company's current officers and
management. Gotham seeks, among other things, court relief that would
(i) enjoin further violations by the Company of the Exchange Act and
SEC proxy rules; (ii) declare that the Gotham Proposal and the
nomination of the Gotham Nominees may be presented at the Annual
Meeting for a vote by the Beneficiaries, and (iii) declare that Gotham
is in compliance with the SEC proxy rules and the terms of the
Company's Declaration of Trust and By-Laws.
48
<PAGE>
Also on January 20, 1998, subsequent to Gotham's removal of the
Company's action to the United States District Court, the Company
filed a motion in state court for an order awarding the preliminary
declaratory and injunctive relief it seeks in its Complaint pending a
final determination by the state court. The state court scheduled a
hearing on the Company's motion for February 10, 1998.
On January 21, 1998, the Company filed a motion in the United
States District Court for an order remanding the litigation to state
court. The Company concurrently filed a motion for an expedited
hearing on its motion to remand the matter to state court.
On January 23, 1998, Gotham filed a motion in the federal court
for an order granting preliminary injunctive relief on certain of its
counterclaims. Gotham also requested that the hearing on the Company's
motion to remand and on the Company's and Gotham's preliminary
injunction motions be scheduled on or before March 10, 1998.
On January 30, 1998, Gotham filed a separate civil action against
First Union in the United States District Court for the Northern
District of Ohio, where it was assigned Case No. 98CV272. Gotham's
complaint asserts essentially the same claims as those asserted in its
counterclaims against the Company. Gotham filed the new action because
a substantial question arose regarding whether the federal court would
remand the Company's action to state court. On that date, Gotham also
filed a motion in the new action for an order granting preliminary
injunctive relief on certain of its claims, and a motion for expedited
discovery.
On February 5, 1998, the Company filed an answer to Gotham's
complaint filed January 30, and asserted counterclaims, which were
amended on February 10, 1998, against Gotham alleging, among other
things, that Gotham has violated state law by maliciously interfering
with the Company's business relationships and business opportunities
and by making false and misleading statements about the Company. The
counterclaims also allege that Gotham has violated the Exchange Act
by: (i) making false and misleading statements about material facts in
documents filed with the Commission; and (ii) inappropriately using
inadequate Schedule 13D filings as unlawful proxy solicitations. The
Company's counterclaims seek, among other things, damages based on
Gotham's alleged malicious interference and misrepresentation, and
preliminary and permanent injunctive relief for Gotham's alleged
violations of the Exchange Act.
Gotham believes that the Company's allegations and claims in its
counterclaims are without merit, and Gotham intends to vigorously
defend against such allegations and claims.
49
<PAGE>
On February 11, 1998, the federal court remanded the Company's
action to state court, on the grounds that certain trustees of the
Company share Ohio citizenship with a limited partner of a limited
partnership that is itself a limited partner of Gotham.
On February 12, 1998, Gotham filed a motion in state court for a
stay of the Company's action pending final resolution of the action
filed by Gotham in federal court on January 30, 1998.
On February 17, 1998, the Company filed a motion in Gotham's
federal court action for an order dismissing Gotham's complaint. Among
the Company's arguments in its motion are that: (i) Gotham does not
have standing to assert the Exchange Act claims in its complaint; (ii)
abstention principles require the federal court to dismiss Gotham's
federal action in deference to the state court action; (iii) Gotham's
Exchange Act claims are not ripe for review by the federal court; (iv)
three of the counts in Gotham's complaint are premised entirely upon
the Company's filing of its state court complaint and do not, as a
matter of law, state a claim upon which relief may be granted; (v)
Gotham's breach of fiduciary duty claim is an invalid, improperly pled
derivative claim; (vi) Gotham's declaratory judgment count is
identical to the Company's state court complaint; and (vii) two of
Gotham's Exchange Act claims fail to state claims upon which relief
can be granted.
On February 18, 1998, the Company filed a motion in state court
for an order dismissing certain of Gotham's counterclaims. The Company
asserts in its motion that: (i) Gotham's federal securities law claims
should be dismissed by the state court because they are within the
exclusive jurisdiction of the federal courts; (ii) Gotham's claim that
the Company has violated its Declaration of Trust is premised entirely
upon the Company's filing of its state court complaint and does not,
as a matter of law, state a claim upon which relief may be granted;
and (iii) Gotham's breach of fiduciary duty claim is an invalid,
improperly pled derivative claim.
Gotham believes that the Company's arguments in its motions to
dismiss are without merit.
The state court convened a hearing on the Company's preliminary
injunction motion on March 2, 1998. On March 5, 1998, the state court
adjourned the hearing until March 11, 1998.
On February 19, 1998, and March 6, 1998, the federal court
conducted status conferences. A hearing is currently scheduled in
federal court for March 11, 1998.
50
<PAGE>
POSSIBLE EFFECTS OF THE ADOPTION OF THE GOTHAM PROPOSAL
AND THE ELECTION OF THE GOTHAM NOMINEES
Based upon the publicly available information concerning the
Company, the following would be consequences of the approval of the
Gotham Proposal and the election of the Gotham Nominees.
Mastandrea Employment Agreement. In July 1994, the Company
entered into an Employment Agreement with Mr. Mastandrea. The
Agreement has an initial three-year term and is extended automatically
for additional one-year terms unless one of the parties gives notice
of an intention not to renew.
The agreement with Mr. Mastandrea provides that he will have the
titles, and perform the duties, of Chairman of the Board of Trustees,
Chairman of the Executive Committee of the Board of Trustees, and
President and Chief Executive Officer of the Company. Under the
agreement, Mr. Mastandrea receives an annual base salary of not less
than $250,000, subject to annual review and adjustment by the Board of
Trustees; health and welfare benefits; participation in the Company's
1994 Long Term Incentive Performance Plan; and split-dollar life
insurance in the benefit amount of $2,500,000. According to the
Company's Preliminary Proxy Statement, Mr. Mastandrea's total salary,
bonus and other cash compensation for the Company's 1997 fiscal year
was $585,416. In addition, he was awarded 228,390 restricted Shares
(valued at $3,471,428 at the date of grant) and options to acquire
225,000 Shares (valued in the "Option Grants in Last Fiscal Year"
table of the Company's Preliminary Proxy Statement at $765,421 based
on 5% annual appreciation and $1,833,316 based on 10% annual
appreciation), and received $13,094 in other compensation. Added
together, these amounts equal $4,835,359 or $5,903,254 of compensation
for Mr. Mastandrea in 1997, depending on which option appreciation
assumption is used.
The premiums on the split-dollar life insurance were set with the
expectation that, if Mr. Mastandrea continues to work for the Company
until he attains age 65, the cash surrender value of the policy will
be sufficient to fund (1) the return to the Company of all premiums
paid by it and (2) paid-up insurance on the life of Mr. Mastandrea in
the amount of $2,500,000.
The employment of Mr. Mastandrea may be terminated at any time.
However, if the Company terminates the employment of Mr. Mastandrea
without cause (as defined in the Agreement), or if he terminates his
employment for good reason (as defined in the Agreement), the Company
is required to continue to pay his base salary and bonus and to
provide benefits, including pension contributions and vesting of
options, for a period of three years, unless he earlier dies or
attains age 65. A portion of the Shares of restricted stock previously
granted to Mr. Mastandrea would also vest.
51
<PAGE>
It is expected that Mr. Mastandrea's employment with the Company
will be terminated with or without cause by the Company, or with or
without good reason by Mr. Mastandrea, if the Gotham Proposal is
adopted and the Gotham Nominees are elected. If termination by the
Company without cause or termination by Mr. Mastandrea with good
reason occurs after a change in control or shift in ownership (which
would include the adoption of the Gotham Proposal and the election of
the Gotham Nominees), in addition to the provisions described in the
preceding paragraph, the base salary, bonus and pension contributions
payable to Mr. Mastandrea following termination become due immediately
in lump sum, and all grants under the 1994 Long Term Incentive
Performance Plan become fully vested.
In the event a change in ownership or control of the Company
occurs within the meaning of Section 280G of the Internal Revenue Code
(the "Code"), the aggregate amount payable to Mr. Mastandrea will be
limited to the maximum amount that may be deducted for federal income
tax purposes without constituting "excess parachute payments" under
Section 280G. In addition, Mr. Mastandrea has agreed to defer the
receipt of payments that would otherwise not be deductible due to the
$1,000,000 limit under Section 162(m) of the Code.
Senior Notes. Pursuant to the terms of the Indenture, dated as of
September 1, 1993, between the Company and Society National Bank, as
Trustee (the "Indenture"), under which the Company's 8 7/8% Senior
Notes due 2003 (the "Senior Notes") were issued, upon (i) the "change
of control" of the Company (as defined in the Indenture), which would
include the approval of the Gotham Proposal and the election of the
Gotham Nominees, and (ii) the occurrence of a specified rating decline
of the Senior Notes by Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's") within ninety days
following such a "change of control", the holders of such Senior Notes
would have the right to require the Company to repurchase all or any
part of such Senior Notes at a price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest
thereon. Interest on the Senior Notes at the rate of 8 7/8% per annum
is payable semi-annually on April 1 and October 1. If the Senior Notes
are rated by either S&P or Moody's as investment grade, the specified
decline in rating means a decline in such rating to below investment
grade. If the Senior Notes are rated below investment grade by both
S&P and Moody's, the specified decline means any decline in such
rating by either S&P or Moody's. Gotham believes that the adoption of
the Gotham Proposal and the election of the Gotham Nominees will not
result in such a specified decline in the ratings of the Senior Notes
or the exercise of the right to have the Company repurchase the Senior
Notes. If the ratings of the Senior Notes decline and the holders of
the Senior Notes exercise this right, Gotham believes that the Company
would be able to refinance the Senior Notes without a material adverse
effect on the financial position of the Company. The outstanding
aggregate principal amount under the Senior Notes is $100,000,000.
52
<PAGE>
Impark Put-Call Agreement. In connection with the acquisition of
Imperial Parking Ltd. ("Impark") on April 17, 1997, the Company's
affiliated management company acquired approximately 67% of Impark's
voting common stock, and Impark's former owners received non-voting
common stock of Impark. The holders of the non-voting common stock
issued to the former owners of Impark have the right (but not the
obligation) to cause the Company to purchase such stock at an
escalating price during certain periods following the occurrence of
"trigger events" (as defined in such agreement), which would include
the adoption of the Gotham Proposal and the election of the Gotham
Nominees, or after approximately 30 months have passed following April
17, 1997 (although the Company has the right to extend the closing
date of such purchase for six months upon the payment of a fee to such
holders). According to the Company's Prospectus Supplement, dated May
28, 1997, to the Company's Prospectus, dated October 7, 1996, in
connection with the offering of 5,500,000 Shares, the purchase price
payable in respect of such right increases from the aggregate issue
price as of April 17, 1997 of approximately $10.6 million at an 8% per
annum rate on the outstanding amount for the first six months and
compounded by an additional one percentage point per annum each six
month period thereafter up to a maximum rate of 17% per annum.
Impark Credit Agreement. The adoption of the Gotham Proposal and
the election of the Gotham Nominees would constitute a
"collateralization event" under the Ancillary Agreement, dated April
17, 1997, between BT Bank of Canada ("BT"), Hong Kong Bank of Canada
("HKB") and the Company (the "Impark Ancillary Agreement"). Pursuant
to such agreement, upon the occurrence of a "collateralization event",
BT and HKB have the right to require the Company to deliver to a
trustee United States or Canadian government bonds representing the
outstanding amount of borrowings under the Amended and Restated Credit
Agreement, dated April 17, 1997, between Impark, 504463 N.B. Inc. and
BT. In the event that BT and HKB exercise such right, Gotham believes
that Impark would either collateralize or refinance its borrowings and
that Impark could refinance such borrowings without a material adverse
effect on the financial position of the Company. The total aggregate
amount of borrowings that may be outstanding at any time under such
Credit Agreement is Canadian $50,000,000.
Company Credit Agreement. In response to discovery requests made
in connection with the litigation between the Company and Gotham, the
Company has provided to Gotham an unsigned copy of the Amended and
Restated Credit Agreement, dated as of November 1, 1997, among the
Company, First Union Management, Inc., the lending institutions named
therein, Keybank National Association, as Documentation Agent, Bankers
Trust Company, as Syndication Agent, and National City Bank, as
Administrative Agent (the "Company Credit Agreement"). The Company
Credit Agreement provides that if (i) a collateralization event occurs
under the Impark Ancillary Agreement and such event is not waived as
provided for therein (see "Impark Credit Agreement" above), and (ii)
lenders holding 66 2/3% of the then outstanding loans and unutilized
53
<PAGE>
commitments under the Company Credit Agreement (the "Required
Lenders") determine in their reasonable judgment that as a result of
such a collateralization event, the Company's ability to refinance its
obligations under the Company Credit Agreement is materially adversely
affected, then the Required Lenders may terminate the Company Credit
Agreement and declare all principal and accrued interest thereunder
immediately due and payable. Gotham does not believe that the
occurrence of a collateralization event under the Impark Ancillary
Agreement would materially adversely affect the Company's ability to
refinance its obligations under the Company Credit Agreement. The
total aggregate amount of borrowings that may be outstanding at any
time under the Company Credit Agreement is $125,000,000.
1994 Option Plan. Under the Company's 1994 Long Term Incentive
Performance Plan (the "1994 Plan"), a "change of control" (as defined
in the 1994 Plan), which would include the adoption of the Gotham
Proposal and the election of the Gotham Nominees, would cause (i) all
stock appreciation rights and stock options outstanding under the 1994
Plan to become fully exercisable, (ii) all restrictions and conditions
applicable to restricted Share awards under the 1994 Plan to be deemed
satisfied, (iii) all cash awards under the 1994 Plan to be deemed to
have been fully earned, and (iv) the term of all loans granted under
the 1994 Plan to fund the exercise price of awards to be extended for
twenty years. According to the Company's Proxy Statement in connection
with the 1997 Annual Meeting of Beneficiaries, as of December 31,
1996, options on 494,880 Shares with exercise prices ranging from
$6.375 to $7.75 and 427,500 restricted Shares granted under the 1994
Plan were outstanding.
Change in Control Agreements. According to the Company's
Preliminary Proxy Statement, the Company has entered into new
agreements (each, a "Change in Control Agreement") with five executive
officers (James C. Mastandrea, Steven M. Edelman, Paul F. Levin, John
J. Dee and Thomas T. Kmiecek) and certain senior officers and key
employees of the Company. Each Change in Control Agreement provides
that in the event such executive's or employee's employment with the
Company is terminated within two years following a "change in control"
of the Company (as defined in the Change in Control Agreement), which
would include the adoption of the Gotham Proposal and the election of
the Gotham Nominees, either by the officer or employee for "Good
Reason" or by the Company "Without Cause" (each as defined in the
Change in Control Agreement), such executive or employee will be
entitled to receive (i) accrued salary and other benefits earned or
accrued, (ii) an amount equal to a multiple of such person's Base
Salary and Additional Compensation (each as defined), (iii) cash in
lieu of shares receivable upon the exercise of options awarded under
the 1994 Plan, and (iv) cash for such unvested portion of such
person's interest in any of the Company's pension plans. In addition,
if any payment or distribution (including payments under the Change in
Control Agreement, any stock option agreement or otherwise) to an
officer or employee is determined to be an "excess parachute payment"
under the Code, such officer or employee would be entitled to receive
54
<PAGE>
an additional payment (net of taxes, including interest and penalties)
to compensate such officer or employee for any excise tax imposed by
the Code on such payment or distribution. The specified multiple for a
person's Base Salary and Additional Compensation referred to above
are: two, in the case of the named executive officers and one senior
officer; one, in the case of certain other officers; and one-half, in
the case of certain key employees.
In addition to the above-described agreements, the Company
indicated that it has agreed to reimburse each officer and employee
party to a Change in Control Agreement for certain legal, financial
and other professional services.
Certain Provisions of the Declaration of Trust. Article VIII,
Section 8.10 of the Company's Declaration of Trust provides that:
any person who owns, directly or indirectly, more than one
percent (1%) of the securities of, or acts as an officer,
trustee, director or employee of or consultant for, or is
otherwise affiliated with or controlled by, any real estate
company (a) that competes with the Trust for investments, (b)
that is a major supplier of services to the Trust, or (c) in
which the Trust has a significant financial interest, or any
person who is an agent of, or is otherwise affiliated with or
controlled by any such person, shall not be qualified to serve
as a Trustee.
Gotham believes that each of the Gotham Nominees is fully qualified
under the Company's Declaration of Trust and By-Laws to serve as a
Trustee of the Company, and that none of the restrictions contained in
the foregoing provision will prevent any Gotham Nominee from serving
as a Trustee if elected. The Company has alleged that the Gotham
Nominees are not qualified to serve as Trustees in filings made in
connection with its litigation against Gotham, but the Company has not
provided any specifics relating to such allegations. Gotham belives
that such allegations are without merit and that Gotham will prevail
on this issue in the litigation. See "Certain Litigation."
In addition, Section 8.1 of the Declaration of Trust provides in
relevant part that "[t]he number of Trustees shall be not less than
three nor more than fifteen, as from time to time determined at annual
. . . meetings of the Beneficiaries by affirmative vote of the holders
of a majority of the shares represented and entitled to vote at such
meetings." In its litigation against Gotham and Gotham II, the Company
has presented its view that seats created by an increase in the size
of the Board would be vacancies, which under Section 8.4 of the
Declaration of Trust would be filled by the incumbent Trustees. Gotham
believes that the right to elect Trustees at an annual meeting is
expressly reserved to the Beneficiaries in Section 8.2 of the
Declaration of Trust and that nothing in the Declaration of Trust
derogates that right. The structure and order of Sections 8.1 through
8.4 of the Declaration of Trust indicate that the right of the
55
<PAGE>
Trustees to fill vacancies arises only when a Trustee resigns or is
removed (Section 8.3) or when it is determined subsequent to an
election that a newly-elected Trustee is not qualified to serve as a
Trustee under the Declaration of Trust (Section 8.2), and not in
connection with an increase in the size of the Board of Trustees.
Gotham believes that this conclusion is consistent with
well-established law which provides that absent an explicit provision
in the governing documents to the contrary, shareholders have the
right to vote for newly-created seats on a board and these seats are
not deemed to be vacancies.
Gotham believes that the Company's view is without merit and that
Gotham and Gotham II will prevail on this issue in the litigation.
However, if the Company prevails on this issue in the litigation and
the Gotham Proposal is adopted, a majority of the incumbent Trustees
would be entitled to select the individuals to fill the six
newly-created positions on the Board of Trustees. If the Company
prevails on this issue in the litigation and the Current Board's
Proposal is adopted, a majority of the incumbent Trustees would be
entitled to select the individuals to fill the three newly-created
positions on the Board of Trustees. See "Certain Litigation."
Pending Litigation. Gotham believes that if the Gotham Proposal
is adopted and each of the Gotham Nominees are elected to the Board of
Trustees, the litigation between the Company and Gotham and Gotham II
will be terminated. See "Certain Litigation."
Cost of Proxy Solicitation. Gotham intends to seek reimbursement
from the Company for its costs incurred in connection with this proxy
solicitation. Such request for reimbursement will not be submitted to
a vote of the Company's Beneficiaries.
Gotham disclaims any responsibility for the accuracy of the
information set forth herein relating to the Mastandrea Employment
Agreement, the Senior Notes, the Impark Put-Call Agreement, the Impark
Credit Agreement, the Impark Ancillary Agreement, the Company Credit
Agreement, the 1994 Plan and the Change in Control Agreements. Such
information has been extracted from the Company's public filings
(except for information regarding the Company Credit Agreement, which
has extracted from the unsigned copy of such agreement provided to
Gotham by the Company).
CERTAIN EFFECTS OF THE CLINTON ADMINISTRATION'S BUDGET PROPOSALS
The Company is one of a small number of REITs with a
stapled-stock or paired share structure, which allows it through its
stapled management company to acquire and hold operating businesses.
The Company's structure (as well as similar structures of certain
other REITs) was grandfathered when similar structures for most other
56
<PAGE>
REITs were prohibited under the Deficit Reduction Act of 1984. The
Clinton Administration's current proposed Budget of the United States
Government for the Fiscal Year 1999, dated February 2, 1998, contains
a proposal which would limit the grandfathered status of existing
stapled-stock REITs, including the Company. According to the proposal,
"for purposes of determining whether any grandfathered entity is a
REIT, the stapled entities would be treated as one entity with respect
to properties acquired on or after the date of the first committee
action and with respect to activities or services relating to such
properties (i.e., properties that are acquired after the [date of such
first committee action]) that are undertaken or performed by one of
the stapled entities on or after such date." If this proposal is
passed into law, the Company will not be able to make investments
which take advantage of its stapled-stock structure following the date
of the first committee action relating to the proposal. In addition,
the proposal may make it difficult for the Company to pursue strategic
alternatives to maximize the value inherent in its stapled-stock
structure. It is unclear at the present time whether this proposal or
any other proposal which would serve to limit the advantages to the
Company of its stapled-stock structure will be adopted.
CERTAIN INFORMATION REGARDING THE PARTICIPANTS
The principal business of Gotham and Gotham II is the buying and
selling of securities for investment for its own account. Section H
Partners, L.P. is the general partner of Gotham and Gotham II, and
Karenina Corporation and DPB Corporation are general partners of
Section H Partners, L.P. Gotham Partners Management Co. LLC, a limited
liability company affiliated with Gotham and Gotham II, manages the
investments of Gotham and Gotham II. The principal business address of
each of such entities is care of 110 East 42nd Street, 18th Floor, New
York, New York 10017.
Gotham, Gotham II, Gotham Partners Management Co. LLC, Section H
Partners, L.P., Karenina Corporation, DPB Corporation and the Gotham
Nominees are sometimes referred to herein as the "Participants" in
this solicitation. No employees or other representatives of Gotham or
Gotham Partners Management Co. LLC will solicit proxies other than
those employees who are Gotham Nominees. The transactions involving
Shares over the past two years by the Participants and certain other
information with respect to the Participants is set forth on Schedule
II of this Proxy Statement.
Except as set forth in this Proxy Statement (including the
Schedules hereto), none of the Participants, or any associate of the
foregoing, directly or indirectly owns any securities of the Company
or any subsidiary of the Company, beneficially or of record, has the
right to acquire beneficial ownership of such securities within 60
days or has purchased or sold such securities within the past two
years.
57
<PAGE>
INFORMATION CONCERNING THE COMPANY
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports and other
information with the Commission. Reports, proxy statements and other
information filed by the Company with the Commission in accordance
with the Exchange Act may be inspected and copied at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: 7 World Trade Center, Suite 1300,
New York, New York 10048 and Suite 1400, Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, such material concerning the Company can be inspected at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005. The Commission also maintains a World Wide Web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants, including the
Company, that file electronically with the Commission.
VOTING AND PROXY PROCEDURES
The Company has set February 13, 1998 as the Record Date. Only
Beneficiaries of record on the Record Date will be entitled to notice
of and to vote at the Annual Meeting. Each Share is entitled to one
vote. Beneficiaries who sell Shares before the Record Date (or acquire
them without voting rights after the Record Date) may not vote such
Shares. Beneficiaries of record on the Record Date will retain their
voting rights in connection with the Annual Meeting even if they sell
such Shares after the Record Date. Based on publicly available
information, Gotham believes that the only outstanding class of
securities of the Company entitled to vote at the Annual Meeting is
the class constituting the Shares. According to publicly available
information, as of February 13, 1998, there were 31,562,450 Shares
issued and outstanding.
Shares represented by properly executed WHITE proxy cards will be
voted at the Annual Meeting as marked and, in the absence of specific
instructions, will be voted FOR the Gotham Proposal, FOR the election
of the Gotham Nominees, AGAINST the Current Board's Proposal and in
the discretion of the persons named as proxies on all other matters as
may properly come before the Annual Meeting.
Abstentions and broker non-votes will be included in determining
the number of Shares present for purposes of determining the presence
of a quorum.
Approval of the Gotham Proposal or the Current Board's Proposal
requires the affirmative vote of a majority of Shares represented by
person or proxy and entitled to vote at the Annual Meeting. Broker
non-votes will not be treated as entitled to vote on the Gotham
Proposal or the Current Board's Proposal and, therefore, will have no
58
<PAGE>
effect on whether the Gotham Proposal or the Current Board's Proposal
is adopted. Abstentions from voting on the Gotham Proposal or the
Current Board's Proposal have the same effect as a vote "against" the
Gotham Proposal or the Current Board's Proposal, respectively.
Election of the Gotham Nominees to the seats on the Board of
Trustees to which they were nominated requires the affirmative vote of
a plurality of the Shares cast for such seats. Abstentions and broker
non-votes will have no effect on the election of the Gotham Nominees
to the Board of Trustees.
Beneficiaries of the Company may revoke their proxies at any time
prior to its exercise by attending the Annual Meeting and voting in
person (although attendance at the Annual Meeting will not in and of
itself constitute revocation of a proxy) or by delivering a written
notice of revocation. The delivery of a subsequently dated proxy which
is properly completed will constitute a revocation of any earlier
proxy. The revocation may be delivered either to Gotham in care of
Beacon Hill Partners, Inc. ("Beacon Hill") at the address set forth on
the back cover of this Proxy Statement or to the Company at 55 Public
Square, Suite 1900, Cleveland, Ohio 44113-1937, or any other address
provided by the Company. Although a revocation is effective if
delivered to the Company, Gotham requests that either the original or
photostatic copies of all revocations be mailed to Gotham in care of
Beacon Hill at the address set forth on the back cover of this Proxy
Statement or faxed to Beacon Hill at (212) 843-4384 so that Gotham
will be aware of all revocations and can more accurately determine if
and when proxies have been received from the holders of record on the
Record Date of a majority of the outstanding Shares.
IF YOU WISH TO VOTE FOR THE GOTHAM PROPOSAL, FOR THE ELECTION OF
THE GOTHAM NOMINEES TO THE BOARD AND AGAINST THE CURRENT BOARD'S
PROPOSAL, PLEASE SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED WHITE
PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. GOTHAM RECOMMENDS
THAT YOU VOTE "FOR" THE GOTHAM PROPOSAL AND GOTHAM NOMINEES AND
"AGAINST" THE CURRENT BOARD'S PROPOSAL.
SOLICITATION OF PROXIES
Solicitation of proxies is being made by and on behalf of Gotham.
Proxies will be solicited by mail, advertisement, telephone or
facsimile and in person. Solicitations may be made by certain
directors, officers and employees of Gotham and its affiliates and
associates, none of whom will receive additional compensation for such
solicitation.
Gotham has retained Beacon Hill for solicitation and advisory
services in connection with this solicitation, for which Beacon Hill
will receive compensation not to exceed $50,000 together with
reimbursement for its reasonable out-of-pocket expenses. Gotham has
59
<PAGE>
also agreed to indemnify Beacon Hill against certain liabilities and
expenses, including under the federal securities law.
Gotham and Beacon Hill will solicit proxies from individuals,
brokers, banks, bank nominees and other institutional holders. Gotham
has requested banks, brokerage houses and other custodians, nominees
and fiduciaries to forward all solicitation materials to the
beneficial owners of the shares they hold of record. Gotham will
reimburse these record holders for their reasonable out-of-pocket
expenses in so doing. It is anticipated that Beacon Hill will employ
approximately 50 persons to solicit the Company's Beneficiaries for
the Annual Meeting.
The cost of the solicitation of proxies is being borne by Gotham.
Costs related to the solicitation of proxies include or may include
expenditures for attorneys, accountants, financial advisers, proxy
solicitors, public relations advisers, printing, advertising, postage,
litigation and related expenses and filing fees and are expected to be
in the aggregate approximately $2,700,000. Gotham estimates that
through the date hereof, its expenses in connection with this
solicitation are approximately $1,700,000.
Gotham intends to seek reimbursement from the Company for its
costs incurred in connection with this proxy solicitation. Such
request for reimbursement will not be submitted to a vote of the
Company's Beneficiaries.
BENEFICIARY PROPOSALS FOR 1999 ANNUAL MEETING
Gotham anticipates that the Company proxy statement with respect
to the Annual Meeting will indicate that proposals of the Company's
Beneficiaries that are intended to be presented by such Beneficiaries
at the 1999 Annual Meeting of Beneficiaries of the Company must be
received by the Company on or before the date specified therein in
order to be considered for inclusion in the proxy statement and form
of proxy relating to that meeting. The inclusion of any proposal will
be subject to applicable rules of the Commission.
OTHER MATTERS AND ADDITIONAL INFORMATION
Gotham is unaware of any other matters to be considered at the
Annual Meeting. Gotham has notified the Company of its intention to
bring before the Annual Meeting the Gotham Proposal and its nomination
of the Gotham Nominees. Should other proposals be brought before the
Annual Meeting, the persons named as proxies on the enclosed WHITE
proxy card will vote on such matters in their discretion.
Beneficiaries will have no appraisal or similar rights of dissenters
with respect to the Gotham Proposal.
Schedule II of this Proxy Statement sets forth certain
information, as made available in public documents, regarding Shares
held by the Company's management and Trustees and beneficial owners of
more than five percent of the Company. The information concerning the
60
<PAGE>
Company contained in this Proxy Statement and the Schedules attached
hereto has been taken from, or is based upon, publicly available
information. To date, Gotham has not had access to the books and
records of the Company. Although Gotham does not have any knowledge
that would indicate that any statement contained herein based upon
such documents and records is untrue, Gotham does not take any
responsibility for the accuracy or completeness of the information
contained in such documents and records, or for any failure by the
Company to disclose events that may affect the significance or
accuracy of any such information.
GOTHAM PARTNERS, L.P.
March 11, 1998
61
<PAGE>
SCHEDULE I
SHARES HELD BY GOTHAM AND GOTHAM II
Gotham is the beneficial owner of an aggregate of 2,601,951
Shares. Gotham II is the beneficial owner of an aggregate of 30,449
Shares. Within the past two years, Gotham and Gotham II have engaged
in the following transactions in Shares. Except as otherwise indicated
below, the securities acquired or disposed of consisted of Shares and
the transactions were effected on the New York Stock Exchange.
I. Transactions in Shares by Gotham
TRANSACTION NUMBER OF SHARES PRICE PER SHARE
DATE ACQUIRED/DISPOSED OF OR OPTION
----------- -------------------- ---------------
11/13/96 330,240 $10.00360
11/14/96 9,846 10.06000
11/14/96 364,702 10.43300
11/15/96 123,077 10.43300
11/15/96 20,677 10.44500
12/19/96 (553,742) 11.00000
12/19/96 690,000 (1) 3.38000
12/20/96 98,510 11.36000
12/23/96 11,525 11.31000
12/24/96 39,400 11.56000
1/03/97 2,970 11.47670
1/24/97 109,970 13.43330
1/27/97 29,690 13.35110
1/28/97 65,590 13.41280
1/29/97 (360,000) 13.49000
1/29/97 7,300 13.43500
1/29/97 493,150 (2) 4.31635
1/30/97 (190,905) 13.39100
2/03/97 7,595 13.52750
3/20/97 (49,315) 13.19600
3/20/97 (29,655) 13.19000
3/21/97 (37,475) 13.32500
4/11/97 6,410 13.36730
4/14/97 157,810 13.90610
I-1
<PAGE>
4/25/97 56,500 13.72260
4/29/97 55,000 13.80000
4/30/97 30,930 13.79480
5/01/97 39,700 13.58150
5/06/97 40,000 13.56000
5/29/97 127,680 12.79760
5/30/97 77,585 12.78330
6/02/97 23,740 13.05000
6/10/97 98,800 13.31000
8/01/97 19,300 13.32360
8/04/97 9,895 13.30000
8/05/97 49,480 13.42500
8/06/97 6,430 13.30000
8/12/97 495 13.42500
8/13/97 30,575 13.41310
8/14/97 2,965 13.30000
8/15/97 24,740 13.27500
8/18/97 19,790 13.30000
10/03/97 59,376 13.63330
10/07/97 173,180 13.55000
10/08/97 98,960 13.43500
10/09/97 98,960 13.37250
1/23/98 10,500 14.92500
2/04/98 100,000 11.66800
- --------------------
(1) Cash settled call option on 690,000 Shares at $8.80 per Share
pursuant to a Letter Agreement, dated as of January 24, 1997, by
and between Gotham and J.P. Morgan Securities, Inc. ("J.P.
Morgan"), as agent for Morgan Guaranty Trust Company of New York
("Morgan Guaranty"), as modified to physical settlement by a
Letter Agreement, dated as of June 10, 1997, by and between
Gotham and J.P. Morgan, as agent for Morgan Guaranty. The option
was exercised by Gotham on December 24, 1997 at an aggregate
exercise price of $6,072,000.
(2) Cash settled call option on 493,150 Shares at $10.80 per Share
pursuant to an Option Agreement, dated as of January 29, 1997, by
and between Gotham and Bankers Trust Company ("Bankers Trust"),
as modified to physical settlement by the First Transaction
Amendment, dated as of June 4, 1997, by and between Gotham
I-2
<PAGE>
and Bankers Trust. The option was exercised by Gotham on January
21, 1998 at an aggregate exercise price of $5,326,020.
II. Transactions in Shares by Gotham II
TRANSACTION NUMBER OF SHARES PRICE PER SHARE
DATE ACQUIRED/DISPOSED OF OR OPTION
----------- -------------------- ---------------
11/13/96 5,160 $10.00360
11/14/96 154 10.06000
11/14/96 5,698 10.43300
11/15/96 1,923 10.43300
11/15/96 323 10.44500
12/19/96 (13,258) 11.00000
12/19/96 10,000 (1) 3.38000
12/20/96 1,490 11.36000
12/23/96 175 11.31000
12/24/96 600 11.56000
1/03/97 4,530 11.47670
1/17/97 (680) 13.06500
1/24/97 1,530 13.43330
1/27/97 410 13.35110
1/28/97 910 13.41280
1/29/97 (5,000) 13.49000
1/29/97 100 13.43500
1/29/97 6,850 (2) 4.31635
1/30/97 (2,650) 13.39100
2/03/97 105 13.52750
3/20/97 (685) 13.19600
3/20/97 (410) 13.19000
3/21/97 (425) 13.32500
4/11/97 90 13.36733
4/14/97 2,190 13.90610
4/30/97 370 13.79481
5/29/97 1,520 12.79760
5/30/97 915 12.78330
6/02/97 1,260 13.05000
I-3
<PAGE>
6/10/97 1,200 13.31000
8/04/97 105 13.30000
8/05/97 520 13.42500
8/06/97 70 13.30000
8/12/97 5 13.42600
8/13/97 325 13.41310
8/14/97 35 13.30000
8/15/97 260 13.27500
8/18/97 210 13.30000
10/03/97 624 13.63330
10/07/97 1,820 13.55000
10/08/97 1,040 13.43500
10/09/97 1,040 13.37250
- --------------------
(1) Cash settled call option on 10,000 Shares at $8.80 per Share
pursuant to a Letter Agreement, dated as of January 24, 1997, by
and between Gotham II and J.P. Morgan, as agent for Morgan
Guaranty, as modified to physical settlement by a Letter
Agreement dated as of June 10, 1997, by and between Gotham II and
J.P. Morgan, as agent for Morgan Guaranty. The option was
exercised by Gotham II on December 24, 1997 at an aggregate
exercise price of $88,000.
(2) Cash settled call option on 6,850 Shares at $10.80 per Share
pursuant to an Option Agreement, dated as of January 29, 1997, by
and between Gotham II and Bankers Trust, as modified to physical
settlement by the First Transaction Amendment, dated as of June
4, 1997, by and between Gotham II and Bankers Trust. The option
was exercised by Gotham II on January 21, 1998 at an aggregate
exercise price of $73,980.
III. Transactions in Shares by Other Participants
Except as set forth in this Proxy Statement, none of the
Participants, nor any associate of the foregoing, directly or
indirectly owns any securities of the Company or any subsidiary of the
Company, beneficially or of record, has the right to acquire
beneficial ownership of such securities within 60 days or has
purchased or sold such securities within the past two years.
William A. Ackman is the President of Karenina Corporation, a
general partner of Section H Partners, L.P. David P. Berkowitz is the
President of DPB Corporation, a general partner of Section H Partners,
L.P., the sole general partner of Gotham and Gotham II. Mr. Ackman,
Mr. Berkowitz, Karenina Corporation, DPB Corporation and
I-4
<PAGE>
Section H Partners, L.P. may be deemed the beneficial owners of Shares
owned by Gotham and Gotham II. David S. Klafter and Daniel Shuchman
are limited partners of Gotham and Section H Partners, L.P. Mary Ann
Tighe and James A. Williams are limited partners of Gotham. As limited
partners of such entities, Ms. Tighe, Mr. Williams, Mr. Klafter and
Mr. Shuchman have no right to vote or dispose of any Shares held by
Gotham, and therefore do not beneficially own any Shares held by
Gotham.
BENEFICIAL OWNERSHIP OF SHARES BY THE GOTHAM NOMINEES
The following table sets forth the beneficial ownership of Shares
as of January 23, 1998 by each of the Gotham Nominees.
Amount of Approximate
Name Beneficial Ownership Percentage of Class (1)
- ------------------------ -------------------- -----------------------
William A. Ackman(2) 2,632,400 8.34%
Daniel J. Altobello -0- -0-
David P. Berkowitz(2) 2,632,400 8.34%
Stephen J. Garchik -0- -0-
David S. Klafter(3), (4) -0- -0-
Richard A. Mandel -0- -0-
Daniel Shuchman(3), (4) -0- -0-
Steven B. Snider -0- -0-
Mary Ann Tighe(4) -0- -0-
James A. Williams(4) -0- -0-
- --------------------
(1) Based on 31,562,450 Shares outstanding as of February 13, 1998,
as listed in the Company's Preliminary Proxy Statement.
(2) Mr. Ackman is the President of Karenina Corporation, a general
partner of Section H Partners, L.P. Mr. Berkowitz is the
President of DPB Corporation, a general partner of Section H
Partners, L.P., the sole general partner of Gotham and Gotham II.
Accordingly, Mr. Ackman, Mr. Berkowitz, Karenina Corporation, DPB
Corporation and Section H Partners, L.P. may be deemed the
beneficial owners of Shares owned by Gotham and Gotham II. For
purposes of this table, such ownership is included.
(3) Mr. Klafter and Mr. Shuchman are limited partners of Section H
Partners, L.P. As limited partners of Section H Partners, L.P.,
Mr. Klafter and Mr. Shuchman have no
I-5
<PAGE>
right to vote or dispose of any Shares held by Gotham, and
therefore do not beneficially own any Shares held by Gotham.
(4) Mr. Klafter, Mr. Shuchman, Ms. Tighe and Mr. Williams are limited
partners of Gotham. As limited partners of Gotham, Ms. Tighe and
Mr. Williams have no right to vote or dispose of any Shares held
by Gotham, and therefore do not beneficially own any Shares held
by Gotham.
ADDITIONAL INFORMATION REGARDING THE PARTICIPANTS
To the knowledge of Gotham, except as set forth in this Proxy
Statement, none of the Participants has any substantial interest,
direct or indirect, by security holdings or otherwise, in any matter
to be acted upon at the Annual Meeting, except for the election of
Trustees.
During the past 10 years, none of the Participants has been
convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors).
No part of the purchase price of any of the Shares beneficially
owned by any of the Participants is represented by funds borrowed or
otherwise obtained for the purpose of acquiring or holding such
securities.
None of the Participants is, or within the past year has been, a
party to any contract, arrangement or understanding with any person
with respect to any securities of the Company, except that (i) Mr.
Klafter, Mr. Shuchman, Mr. Williams and Ms. Tighe are limited partners
of Gotham; (ii) Mr. Ackman is the President of Karenina Corporation, a
general partner of Section H Partners, L.P., the general partner of
Gotham and Gotham II; (iii) Mr. Berkowitz is the President of DPB
Corporation, a general partner of Section H Partners, L.P.; (iv) Mr.
Klafter and Mr. Shuchman are limited partners of Section H Partners,
L.P.; (v) Gotham had a cash settled call option on 493,150 Shares
pursuant to an Option Agreement, dated as of January 29, 1997, by and
between Gotham and Bankers Trust, as modified to physical settlement
by the First Transaction Amendment, dated as of June 4, 1997, by and
between Gotham and Bankers Trust; (vi) Gotham had a cash settled call
option on 690,000 Shares pursuant to a Letter Agreement, dated as of
January 24, 1997, by and between Gotham and J.P. Morgan, as agent for
Morgan Guaranty, as modified to physical settlement by a Letter
Agreement, dated as of June 10, 1997, by and between Gotham and J.P.
Morgan, as agent for Morgan Guaranty; (vii) Gotham II had a cash
settled call option on 6,850 Shares pursuant to an Option Agreement,
dated as of January 29, 1997, by and between Gotham II and Bankers
Trust Company, as modified to physical settlement by the First
Transaction Amendment, dated as of June 4, 1997, by and between Gotham
and Bankers Trust; and (viii) Gotham II had a cash settled call option
on 10,000 Shares pursuant to a Letter Agreement, dated as of January
24, 1997, by and between Gotham II and J.P. Morgan, as
I-6
<PAGE>
agent for Morgan Guaranty, as modified to physical settlement by a
Letter Agreement, dated as of June 10, 1997, by and between Gotham II
and J.P. Morgan, as agent for Morgan Guaranty. Through their indirect
interest in Section H Partners, L.P., the general partner of Gotham
and Gotham II, Mr. Ackman and Mr. Berkowitz hold a participation
interest in the profits generated by the investment of Gotham and
Gotham II in such Shares. Gotham Partners Management Co. LLC is
entitled to an annual fee equal to 1% of the assets of Gotham and
Gotham II as consideration for managing such assets. Messrs. Ackman,
Berkowitz, Klafter and Shuchman are employees of, and receive
compensation from, Gotham Partners Management Co. LLC, and Messrs.
Ackman and Berkowitz each hold 50% of the outstanding equity interests
in the managing member of such entity.
On April 17, 1997, certain entities affiliated with ONEX
Corporation sold a controlling interest in Impark to the Company's
affiliated management company for $75 million, including the
assumption of $26 million of debt. In connection with such sale,
certain entities affiliated with ONEX Corporation and the Company
entered into an agreement relating to certain securities of Impark
retained by such entities. Pursuant to such agreement, such entities
have the right to cause the Company to purchase such securities at a
specified price upon certain "trigger events", as defined in such
agreement, which could include the adoption of the Gotham Proposal and
the election of the Gotham Nominees. See "Possible Effects of the
Adoption of the Gotham Proposal and the Election of the Gotham
Nominees" and "Certain Litigation." Mr. Altobello may have an indirect
interest in the outcome of the matters to be acted upon at the Annual
Meeting by virtue of his position as Chairman and CEO of ONEX Food
Services, Inc., a subsidiary of ONEX Corporation.
None of the Participants, or any associate thereof, has any
arrangement or understanding with any person (A) with respect to any
future employment by the Company or its affiliates or (B) with respect
to any future transactions to which the Company or any of its
affiliates will or may be a party.
Except as otherwise disclosed in this Proxy Statement, there are
no pending legal proceedings in which any of the Gotham Nominees or
any of their associates is a party adverse to the Company or any of
its affiliates or in which any of the Gotham Nominees or any of their
associates has an interest adverse to the Company or any of its
affiliates.
None of the Gotham Nominees holds any position or office with the
Company or any parent, subsidiary or affiliate of the Company, and
none has ever served as a director of the Company or any parent,
subsidiary or affiliate of the Company.
None of the Gotham Nominees has any family relationship, by
blood, marriage or adoption, to any Trustee, executive officer or
person nominated or chosen by the Company to become a Trustee or
executive officer of the Company. During the last three
I-7
<PAGE>
fiscal years, no compensation was awarded to, earned by, or paid to
any of the Gotham Nominees by any person for any services rendered in
any capacity to the Company or its subsidiaries. Daniel J. Altobello
is the Chairman and CEO of ONEX Food Services, Inc. which is a
subsidiary of ONEX Corporation.
I-8
<PAGE>
SCHEDULE II
SHARE OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF THE COMPANY
Set forth below is information regarding the Shares owned by
certain beneficial owners, Trustees and executive officers of the
Company.
The following table sets forth, according to publicly available
information on file with the Commission as of the dates indicated
(except information with respect to Gotham and Gotham II), the name
and address of each person who is the beneficial owner of more than
five percent of the outstanding Shares at such date, the number of
Shares owned by each such person, the percentage of the outstanding
Shares represented thereby and certain information with respect to
such person. Gotham disclaims any responsibility for the following
information (except information with respect to Gotham and Gotham II),
which has been extracted from public filings.
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENTAGE OF
OF BENEFICIAL OWNER OWNERSHIP CLASS (1)
- --------------------------------------- -------------------- -------------
Apollo Real Estate Investment 2,135,987 Shares (2) 6.8%
Fund II, L.P.
Apollo Real Estate Advisors II, L.P.
1301 Avenue of the Americas
New York, New York 10019
Gotham Partners, L.P. 2,632,400 Shares (3) 8.34
Gotham Partners II, L.P.
110 East 42nd Street, 18th Floor
New York, New York 10017
Franklin Resources, Inc. 2,900,418 Shares (4) 9.2
777 Mariners Island Blvd.
San Mateo, CA 94404
Charles B. Johnson
777 Mariners Island Blvd.
San Mateo, CA 94404
Rupert H. Johnson
777 Mariners Island Blvd.
San Mateo, CA 94404
II-1
<PAGE>
Franklin Mutual Advisors, Inc.
51 John F. Kennedy Parkway
Short Hills, NJ 07078
Franklin Mutual Series Fund, Inc.
51 John F. Kennedy Parkway
Short Hills, NJ 07078
Stephen Feinberg 1,602,327 Shares(5) 5.1
450 Park Avenue, 28th Floor
New York, New York 10022
- ----------------------------
(1) Based upon 31,562,450 Shares outstanding as of February 13, 1998,
as listed in the Company's Preliminary Proxy Statement.
(2) An Amendment No. 4 to Schedule 13D filed with the Commission on
February 18, 1998 with respect to Shares reflects that Apollo
Real Estate Investment Fund II, L.P. and Apollo Real Estate
Advisors II, L.P. beneficially own an aggregate of 2,135,987
Shares. Apollo Real Estate Investment Fund II, L.P. and Apollo
Real Estate Advisors II, L.P. are deemed to have shared voting
and dispositive power with respect to such Shares.
(3) Gotham beneficially owns 2,601,951 Shares. Gotham II beneficially
owns 30,449 Shares. Each of Gotham and Gotham II has sole voting
and dispositive power with respect to the Shares beneficially
owned by it.
(4) A Schedule 13D filed with the Commission on February 23, 1998
reflects that Franklin Resources, Inc., Franklin Mutual Advisors,
Inc. ("FMAI"), Franklin Mutual Series Fund, Inc., Charles B.
Johnson and Rupert H. Johnson may be deemed to beneficially own
an aggregate of 2,900,418 Shares. FMAI has the sole voting and
dispositive power with respect to such Shares.
(5) A Schedule 13D filed with the Commission on February 17, 1998
reflects that Mr. Feinberg has sole voting and dispositive power
with respect to 348,000 Shares owned by Cerberus Partners, L.P.,
869,931 Shares, consisting of 769,000 Shares and 30,500 Shares of
First Union Series A Cumulative Convertible Redeemable Preferred
Shares of Beneficial Interest, each of which is immediately
convertible into 3.3058 Shares (the "Preferred Shares"), owned by
Cerberus International Ltd.,
II-2
<PAGE>
and 70,300 Shares owned by Ultra Cerberus Funds, Ltd., and
dispositive power with respect to 314,096 Shares owned in the
aggregate by certain other private investment funds.
The table below sets forth, as of February 13, 1998, with respect
to Trustees and nominees, certain named executive officers, and as to
all Trustees and executive officers as a group, information relating
to their beneficial ownership of Shares of the Company, according to
the Company's Preliminary Proxy Statement:
AMOUNT AND NATURE
NAME OF OF BENEFICIAL PERCENTAGE OF
BENEFICIAL OWNER OWNERSHIP (1) CLASS
---------------- ----------------- -------------
TRUSTEES AND NOMINEES
Kenneth K. Chalmers 8,768 .028%
William E. Conway 19,511 .062
James M. Delaney 2,198 .007
Daniel G. DeVos 15,745 .050
Allen H. Ford 25,000 .079
Russell R. Gifford 16,240 .051
Spencer H. Heine 5,000 .016
Herman J. Russell 8,733 .028
James C. Mastandrea 915,559(2) 2.874
(also an Executive Officer)
EXECUTIVE OFFICERS
Steven M. Edelman 117,670(3) .331
Paul F. Levin 104,728(4) .372
John J. Dee 108,022(5) .342
Thomas T. Kmiecik 76,304(6) .241
All Trustees and executive officers 1,423,478(7) 4.400
as a group (13 persons)
- --------------------
(1) Pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, a
person is deemed to be a beneficial owner if he has or shares
voting power or investment authority in respect of such security
or has the right to acquire beneficial ownership within 60 days.
II-3
<PAGE>
The amounts shown in the above table do not purport to represent
beneficial ownership except as determined in accordance with this
Rule. Each Trustee and executive officer has sole voting and
investment power with respect to the amounts shown or shared
voting and investment powers with his spouse, except for
restricted shares which have only voting power and no investment
power.
(2) Includes 565,890 Shares of restricted stock over which Mr.
Mastandrea has sole voting power but no investment power, 286,441
Shares that Mr. Mastandrea has the vested right to acquire
through the exercise of options, and 3,000 Preferred Shares.
(3) Includes 55,000 Shares of restricted stock over which Mr. Edelman
has sole voting power but no investment power and 55,307 Shares
that Mr. Edelman has the vested right to acquire through the
exercise of options.
(4) Includes 50,000 Shares of restricted stock over which Mr. Levin
has sole voting power but no investment power and 51,617 Shares
that Mr. Levin has the vested right to acquire through the
exercise of options.
(5) Includes 50,500 Shares of restricted stock over which Mr. Dee has
sole voting power but no investment power and 52,307 Shares that
Mr. Dee has the vested right to acquire through the exercise of
options.
(6) Includes 30,000 Shares of restricted stock over which Mr. Kmiecik
has sole voting power but no investment power and 44,647 Shares
that Mr. Kmiecik has the vested right to acquire through the
exercise of options.
(7) Includes 490,319 Shares which executive officers have the vested
right to acquire through the exercise of options and 751,390
Shares of restricted stock.
II-4
<PAGE>
IMPORTANT
Tell your Board what you think! Your vote is important. No matter
how many Shares you own, please give Gotham your proxy FOR approving
the Gotham Proposal, FOR the election of the Gotham Nominees and
AGAINST the Current Board's Proposal by taking three steps:
1. SIGNING the enclosed WHITE proxy card,
2. DATING the enclosed WHITE proxy card, and
3. MAILING the enclosed WHITE proxy card TODAY in the envelope
provided (no postage is required if mailed in the United States).
If any of your Shares are held in the name of a brokerage firm,
bank, bank nominee or other institution, only it can vote such Shares
and only upon receipt of your specific instructions. Accordingly,
please contact the person responsible for your account and instruct
that person to execute the WHITE proxy card representing your Shares.
Gotham urges you to confirm in writing your instructions to Gotham in
care of Beacon Hill Partners, Inc. at the address provided below so
that Gotham will be aware of all instructions given and can attempt to
ensure that such instructions are followed.
If you have any questions or require any additional information
concerning this Proxy Statement, please contact Beacon Hill Partners,
Inc. at the address set forth below.
BEACON HILL PARTNERS, INC.
90 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 843-8500 (CALL COLLECT)
OR
CALL TOLL-FREE (800) 253-3814
<PAGE>
WHITE PROXY CARD
ANNUAL MEETING OF BENEFICIARIES OF
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
TO BE HELD ON APRIL 14, 1998
THIS PROXY IS SOLICITED ON BEHALF OF GOTHAM PARTNERS, L.P.
The undersigned appoints William A. Ackman and David P.
Berkowitz, and each of them acting alone, attorneys and agents with
full power of substitution, as proxy of the undersigned (the "Proxy
Agents"), to attend the Annual Meeting (the "Annual Meeting") of the
Beneficiaries of First Union Real Estate Equity and Mortgage
Investments (the "Company") to be held in the Forum Conference Center,
located at One Cleveland Center, Cleveland, Ohio, on April 14, 1998,
commencing at 10:00 A.M., Eastern Daylight Time, and at any and all
adjournments or postponements thereof and any special meeting called
in lieu thereof, and to vote all shares of Beneficial Interest, par
value $1.00 per share (the "Shares"), of the Company, as designated on
the reverse side of this proxy, with all powers the undersigned would
possess if personally present at the meeting, as follows:
(Please mark an "X" in the appropriate box)
GOTHAM PARTNERS, L.P. RECOMMENDS
A VOTE FOR THE FOLLOWING TRUSTEE NOMINEES
1. ELECTION OF TRUSTEES: To elect Mr. William A. Ackman, David P.
Berkowitz and Mr. James A. Williams to succeed the current Class
II members of the Board of Trustees of the Company.
|_| FOR ALL NOMINEES LISTED |_| WITHHOLD AUTHORITY TO VOTE
ABOVE (EXCEPT AS MARKED FOR ALL NOMINEES LISTED ABOVE
TO THE CONTRARY BELOW)
INSTRUCTION: To withhold authority to vote for the election of
any nominee(s), write the name(s) of such nominee(s) in the
following space:
GOTHAM PARTNERS, L.P. RECOMMENDS
A VOTE FOR THE FOLLOWING PROPOSAL
2. PROPOSAL OF GOTHAM PARTNERS, L.P.: To adopt the following:
RESOLVED, in accordance with Article VIII, Section 8.1 of the
Company's Declaration of Trust, as amended, (i) that the number of
Trustees constituting the full Board of Trustees of the Company shall
be determined to be fixed at fifteen (an increase of six members); and
(ii) that two of the newly-created seats of the Board of Trustees of
the Company be assigned to each of Class I, Class II and Class III;
and (iii) that, in addition to electing the three Trustees to fill the
seats of the three Trustees in Class II whose terms are expiring, the
Beneficiaries of the Company shall also elect six Trustees (two
Trustees to each of Class I, Class II and Class III) to serve in the
newly-created seats.
|_| For |_| Against |_| Abstain
GOTHAM PARTNERS, L.P. RECOMMENDS
A VOTE FOR THE FOLLOWING TRUSTEE NOMINEES
3. ELECTION OF TRUSTEES: To elect Daniel Shuchman and Steven S.
Snider to the newly-created Class I seats on the Board of
Trustees of the Company, Mary Ann Tighe and Stephen J. Garchik to
the newly-created Class II seats on the Board of Trustees of the
Company, and David S. Klafter and Daniel J. Altobello to the
newly-created Class III seats on the Board of Trustees of the
Company.
|_| FOR ALL NOMINEES LISTED |_| WITHHOLD AUTHORITY TO VOTE
ABOVE (EXCEPT AS MARKED FOR ALL NOMINEES LISTED ABOVE
TO THE CONTRARY BELOW)
INSTRUCTION: To withhold authority to vote for the election of
any nominee(s), write the name(s) of such nominee(s) in the
following space:
GOTHAM PARTNERS, L.P. RECOMMENDS A
VOTE AGAINST THE FOLLOWING PROPOSAL
4. PROPOSAL OF THE COMPANY: To fix the number of Trustees at twelve
with one vacancy to be added to each existing class of Trustees.
|_| For |_| Against |_| Abstain
5. IN THEIR DISCRETION, EACH OF THE PROXY AGENTS IS AUTHORIZED TO
VOTE UPON ANY OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
ANNUAL MEETING OR ANY ADJOURNMENT THEREOF.
The undersigned hereby revokes any other proxy or proxies
heretofore given to vote or act with respect to the Shares held by the
undersigned, and hereby ratifies and confirms all actions the herein
named Proxy Agents, their substitutes, or any of them may lawfully
take by virtue hereof. If properly executed, this proxy will be voted
as directed above. If no direction is indicated with respect to the
above proposals, this proxy will be voted FOR the election of all
Gotham Nominees, FOR the proposal set forth in Item 2 above, AGAINST
the proposal set forth in Item 4 above and in the manner set forth in
Item 5 above.
This proxy will be valid until the sooner of one year from the
date indicated below and the completion of the Annual Meeting.
DATED: _______________________, 1998.
PLEASE SIGN EXACTLY AS NAME APPEARS ON THIS
PROXY.
--------------------------------------------
(Signature)
--------------------------------------------
(Signature, if held jointly)
--------------------------------------------
(Title)
WHEN SHARES ARE HELD JOINTLY, JOINT OWNERS
SHOULD EACH SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, ETC., SHOULD INDICATE THE CAPACITY
IN WHICH SIGNING.
IMPORTANT: PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN
THE ENCLOSED ENVELOPE.
IF YOU NEED ASSISTANCE WITH THIS PROXY CARD, PLEASE CALL BEACON HILL
PARTNERS, INC. TOLL-FREE (800) 253-3814 or (212) 843-8500 (CALL
COLLECT).
